My Theory about Gold and Silver for Long-Term Investors

Why are these trends so long and so big — both, up and down?

My early experience with silver gave rise to decades of observations that have formed my theory about the price cycles of gold and silver versus the US dollar. My first big loss – “big” only in percentage terms since I was just starting out – was with silver in the early 1980s. I did all the right things: I researched it; I bought physical silver; and I bought after it had crashed 70% from its spike. The spike had been caused by the Hunt brothers’ efforts to corner the silver market – manipulation of precious-metals prices being as old as the precious-metal trade itself.

Silver had spiked to over $45 an ounce. After it collapsed, I saw an opportunity. I bought at $14 an ounce in early 1981. Then I learned the meaning of “catching a falling knife.” Silver continued plunging to around $5/oz, for me a 65% paper-loss. It then experienced a surge of nearly 200%, to where I was, briefly, in the black, and euphoria set it. After which I learned the meaning of “dead-cat bounce” as silver plunged again. In 1984, I sold at $7 an ounce, my first-ever 50% loss. I annotated those events in this chart by Goldbroker.com:

The red horizontal line denotes my purchase price in 1981 of $14 an ounce. Today, nearly four decades later, silver is at $14.15 an ounce. The blue horizontal line denotes the price at which I sold in 1984. Silver continued to fall, hitting $5 an ounce in 1986. And after another dead-cat bounce in 1987, silver fell below $4 an ounce, and stayed below $7/oz until 2005.

For me to come out even, I would have had to sell at the peak of the dead-cat bounce in February 1983. The next chance to sell at break-even came in early 2007.

Then came the epic rally that mirrored the handiwork of the Hunt brothers. After its collapse, silver is back where it had been when I bought after its collapse in early 1981.

This trade is denominated in US dollars, which has lost 65% of its purchasing power since 1981. So if I had held on to my stash of silver and sold today, in real terms, adjusted for the 65% loss of the dollar’s purchasing power… Well, you see where this is headed. The $14/oz I’d get today would buy only a small fraction of the $14/oz I put into the metal in 1981.

In addition, I would have never collected a dime in interest to compensate for the loss of purchasing power.

The only way I could have come out ahead is hang on to my silver until early 2011, then with perfect timing, sell at near its peak.

Gold has gone through similar motions. After a blistering 650% surge from 1976 to early 1980, it plunged, had a 50% dead-cat bounce into October 1980, and then fell off the wagon entirely, dropping below $300/oz in 2001. But then began another surge of over 600% to exceed $1,900/oz in August 2011. At which point the price began to re-collapse. Currently at $1,193/oz, the price of gold is down about 38% from its peak seven years ago (chart via Goldbroker.com):

There are important and valid reasons to hold precious metals (PMs). Some of these reasons have little to do with PMs as a profitable investment or trade, but they’re beyond the scope of this discussion. I want to focus on why these enormous price movements – up and down – are special, why they last so long, and how a long-term investor might look at them.

It boils down to time – a long time.

As evident in the charts above, the large price movements take place over many years. There are huge brief bounces on the way down, and big brief drops on the way up. PMs are very volatile, and so there is a lot of money to be made betting short-term in both directions, a very risky game.

But for long-term investors, there is a different story: Uptrends are glorious and can last a decade. But once the downtrend sets it, it can outlast a normal investor’s time horizon. Gold stayed below its 1980 peak for 20 years years of pain and suffering, until 2001. The subsequent surge lasted a decade and was breath-taking and intoxicating. Then it all re-collapsed. Now we’re only seven years into the downtrend….

Why are these trends so long and so big?

PMs are not commodities like oil, wheat, or lithium that get burned, eaten, or used in industrial processes and products. In typical commodities, when prices surge, producers produce more to make hay while the sun shines, so to speak. When the price surges past a certain point, demand falls off and a glut sets in. Prices plunge below the cost of production for long enough to where some producers go under. Others cut back. Production drops. This happens even as the collapsing price causes demand to rise. Falling production and rising demand work through the glut, the market tightens, and prices recover.

But this mechanism doesn’t work with gold at all and works only in a limited manner with silver. The metals are not (generally) eaten or burned. There is little industrial demand for gold; and what little gold is used for industrial purposes is often recycled. There is more industrial demand for silver, but only part of the production goes into industrial demand, and some of that gets recycled. The rest is hoarded. Much of the gold and silver that has been mined over the past thousands of years is still above ground in form of gold bars, gold and silver coins, jewelry, utensils, decoration, art, sarcophagi, and what not.

The term “consumption” is used a lot in gold-and-silver lingo, but it’s a misnomer for gold. When investors buy gold, they’re not consuming it. They’re hoarding it. Same principle applies when investors buy silver to hoard it.

So even when the price collapses below the cost of production for the lowest-cost mines, and subsequently production collapses, the massive stash of gold that is already above ground doesn’t go away. And with silver, the supply being hoarded as PMs gives the market a lot of supply and flexibility.

This changes the pricing dynamics and lengthens the price cycles of gold and silver. It is why prices can soar beyond all wildest dreams. There are no “rational levels” for the price of gold. Sky-high gold prices don’t impact the real economy: People are rebelling in the streets if they cannot afford to buy bread; but no one is rebelling when gold hits $2,000/oz. At the same time, there is no rational minimum price for gold, and the cost of production is irrelevant on the way down.

As we have seen from the example of the Hunt brothers, price manipulations are rampant in the PM markets. But they’re rampant in every other market as well, and in no market as rampant as in the vast credit markets, particularly the government bond markets, where central banks with the tools of monetary policy, such as interest rate policies and QE, openly manipulate yields and therefore prices.

So for investors who buy and sell gold and silver to make a profit, there is a rule: Buy low and sell high.

I tried to do this the first time and failed. If you fail to sell high, and you get sucked into the subsequent crash, you might have to wait a decade or two decades just to get back where you were in nominal terms. But in the interim, there is no yield to compensate you for the loss of purchasing power of the dollar. You’ll get screwed by two factors: The drop in price of PMs and by not being compensated for the loss of the purchasing power of the dollar!

Traders can benefit from the volatility. But for long-term investors, it boils down to years and decades. They need to wait long enough for the downturn to play out and not grab a falling knife. The current downturn is only seven years into the down cycle. The last downturn in gold lasted from the end of 1980 to 2001. That’s 20 years!

And if long-term investors manage to buy close to the low, and after that glorious multi-year ride toward the sky, they need to sell just when they’re the most euphoric about the price, at the very moment everyone is talking about gold and silver and how great they are. Just when everything says that they should never-ever sell, and that they should buy more now, and that they should convert everything they have into gold and silver, that’s precisely when they need to sell. But this is very hard to do.

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180 comments for “My Theory about Gold and Silver for Long-Term Investors”

Fernando Arzola

Sep 4, 2018 at 3:18 pm

We are in uncharted territory in terms of monetary policy, plus huge national debt, consumer debt, new cold war with China and Russia, crony capitalism, a nation divided by MSM, etc, etc…I am buying as much as I can…I am willing to wait, don’t think it will take 20 years this time…

Rates

Sep 4, 2018 at 10:29 pm

I am not a gold bug, but gold someday will explode when someone BIG finally chooses to get a physical delivery on their contracts. It will be a true short squeeze.

MooMoo7665

Sep 6, 2018 at 4:49 am

When that happens they will novate the contract and you will be forced into a cash settlement determined by the COMEX.

The ‘great squeeze’ will never happen. That BIG player will never force the physical delivery and even if they did… they’d never receive it.

Buckaroo Banzai

Sep 6, 2018 at 10:10 am

Yes. The only way to guarantee that you will take delivery of your gold at some point in the future, is to take actual delivery of it in the present. Which means buying it in the physical market.

Jaco

Sep 5, 2018 at 12:49 am

Unfortunately, JP Morgan controls the price of sliver with it’s holdings of 850 million ounces.

But what’s interesting is that as of late, JP Morgan has reduced it’s short position down to the lowest point since it took over for Bear Stearns.

Some investors believe that in the not to distant future their short position will eventually be reduced to zero and go long……and once that happens Silver will break all time highs and Morgan will make trillions.

One other important point is that Silver in terms of the medical industry is making new advances every day.

Last year I was working on my property tearing down some old chicken coops and I cut my self very badly on an old rusty hinge. After going to the ER and getting over 30 stitches and the top 5 or 6 stitches not healing for some reason, I was sent to wound care specialist. The wound care specialist looked at my wound closely and pulled out a long vial out of a refrigerator. He opened the vial and swabbed significant amount of the liquid on my wound. Unbelievablely, within about 48 hrs the non healing part of the stitches started to scab-over and started to heal.

That liquid in the vial happened to be some high parts per million, pharmaceutical-grade colloidal silver.

nick kelly

Sep 5, 2018 at 3:13 pm

She knows that. The ring was not purchased with a view to re-sell.
BTW: 30 % is not bad recovery for something bought retail.

If they control the price why do they want near historic lows (in constant dollars) for their 850 mil ounces?

BTW: silver has been used as medicine for at least a century, usually as an anti-infectious agent.

Jaco

Sep 5, 2018 at 10:34 pm

Well, first off they’ve made tremendous profits on the short side, driving the price lower and further cornering the market.

But far more importantly, Bullion banks like JP Morgan and ScotiaBank are agents of central banks……and its my belief that by keeping Silver at an erronously low price, it helps to provide the illusion to the casual populace that fiat currencies are sound and stable.

The economy is becoming fundamentally weaker every single day, and keeping the metals prices low right now keeps the Canary from squaking to alert the miners from exiting the mine. But at the correct point in time in the not to distant future, they will lose at the very least, partial control…..and Silver will perform in manner to its true capacity and bullion banks profits will blow peoples minds.

Mike

Sep 5, 2018 at 2:34 am

The thing with these metals is that there is a lot of governmental manipulation of their price. I suspect that there is very little gold left in Fort Knox, because it has been “lent” out to lower the price of gold, for example.

In addition, many of the commentators and sellers are clearly trying to prompt people to buy silver or gold. This is a smaller version of what happened with stocks in the 1930s when people would talk up the price of a stock and then sell out their shares in it for a killing.

Thus, there is really no independent, truly clean, fair market value for these metals: they are all manipulated: e.g., to keep the dollar at a certain rate versus these metals. The Chinese, Indian (from India), and other conservative peoples of the world desire these metals, at least for jewelry.

That would make them valuable if there was no manipulation.
It would make cacao beans, or quetzal feathers, or sea shells valuable again if millions of people desired them.

Without manipulation, their market value would still fluctuate with the fortunes of those markets and the rate of production. As with Tulips, aside from uses in electronics, and a few narrow fields, these metals are so expensive now that few would use them for their ancient uses: plates and decoration.

Consequently, their main use now is as a store of value in an emergency: assuming that there is a market for them and objects that you can purchase via the possession of physical gold. (ETFs are a big ripoff, because I predict that most will collapse if their “investors” ever call for all the gold to be paid.)

Gold or silver ETFs mean you are basically lending money, paying for the privilege usually, and have no security whatsoever. Probably, if gold or silver prices went up significantly, many or all of them would be forced into bankruptcy.

Platinum and other less-hyped metals with clear commercial uses might be better bets, simply because their price is not so manipulated. Mining stocks may also be better bets.

Having said all of that, the corruption in our government has reached incredible levels. Our courts are now making a mockery of the word rule of law, so it is hard to predict may verdicts: e.g., in LA the absence of recordings (and desperate rules to ensure no recordings are made that would reveal judicial misconduct or bribery), allows judges a free hand to do whatever they want without fear of prosecution.

Even with all of the instability in the world, retaliating against China only will only make the manufacturing plants move to Vietnam, or India or some other southeast Asian country, or other, less desirable countries, with lower wages, NOT to the US. Thus, at some point something has to give.

As a result, a limited investment in physical metals, for the possibility that our corrupt, gigantic megabanks (whose capital is 1-3% of their holdings) will inevitably collapse due to their derivative and other gambling with public funds, is wise. (The FDIC “guarantee” will then be like a sigh in a maximum category hurricane: it has tiny capital versus likely losses and requires smaller banks to bail out corrupt banksters, when they fail. Thus, it will drive relatively virtuous, smaller banks into bankruptcy with the larger banks, at best providing a fig leaf to cover the gigantic bankster controlled banks.)

Maybe $10,000 per person that you would want to support might be a good amount to hold: this would be because these metals, if you actually have them and the government does not confiscate them again as it did in the 1930s, may be accepted for transportation and basic needs. Such a holding may be increasingly desirable in future years: our land is being over cultivated and water resources are being used up.

Alcohol and guns would, of course, also be good investments. Demand for them would increase with bad, unstable situations.

Thus, if the dollar becomes undesirable, and our manufacturing still is increasingly done overseas (despite what the protector of the rich claims will happen), while our land produces less and less food, emergencies may crop up where local starvation can occur. In those circumstances, having gold coins or silver dimes (or goods like alcohol and guns) may save your family’s life or health.

Peter Diekmeyer

Sep 4, 2018 at 3:27 pm

Great article Wolf.

Your timing in beginning to address gold will almost certainly prove to be highly prescient, given current conditions.

I would add one thing.

The article addresses gold’s and silver’s performance during the numerous business cycles that have taken place since 1981.

However many secular gold investors believe that the world economy has during that time slipped also meshed into a Kondratiev-style, lifetime-scale, global credit bubble.

Gold, in this scenario, performs a function that goes well beyond a mere investment.

It is also insurance. It is a short position on central banks.

In fact, you could argue that keeping 10% of your portfolio in gold and silver during this entire three decades, bought you a good night’s sleep the entire time.

Because the other 90% of the portfolio did well.

*****

However this story is not over.

Because if that Kondratiev style bubble does exist, and if it follows its natural course, those who hung on to physical gold, are unlikely to regret it.

Frederick

Sep 4, 2018 at 3:59 pm

Peter Well said and I am holding onto mine With both hands

Petunia

Sep 4, 2018 at 3:56 pm

The financial crisis forced me to cash out of a collection of really nice jewelry acquired over more than 20 years. After all the savings were gone, the gold jewelry was the only other thing we could easily sell. I didn’t keep track of the losses because it was difficult letting go of all the memories. Everything went from the engagement ring purchased for $3K which sold for about half. The wedding rings went as well. Over all, I cashed out at about 25-30% of purchase price. All the gold and stones sold, the silver only if it had designer or brand value. Had we had the cash instead of the jewelry, we would have survived another year or more comfortably.

Crysangle

Sep 4, 2018 at 6:23 pm

Unfortunately jewellery usually goes at scrap gold prices, buyers have made no mistake… because they like that jewellery, but if they ever decide to sell it they will notice the large markup which they will not be able to cash in. This is much a product of western “values” or marketing, in the middle east for example jewellery is often sold by weight. Precious stones are also open to the same effect I think. :-(

Frederick

Sep 5, 2018 at 4:23 am

You need to own coins and/or bullion NOT jewelry to protect wealth Jewelry has a high markup and therefore you lose when you want to liquidate Jewelry is NOT the way to own precious metals

alex in san jose AKA digital Detroit

Sep 5, 2018 at 10:22 pm

You’ve got to buy your precious metals pennies, or at most, dimes, to the dollar. You have to hit garage sales, make clever trades, things like that. The swings in prices are so wide that you can lose a LOT of money buying it at market price even using tools like dollar cost averaging.

There are other things, gems/diamonds which can be easier to hide, for instance. There are also skills, which are hard to take from you. Trust me I grew up in Hawaii I know they can take “smarts” from you, the hated minority group – they can break your hands or break your head, legally because they’re the police force, the government etc. Think WWII Germany – the hated minority group there couldn’t exactly go running to a cop.

So think about what’s worked, historically. A fellow named “Selco” mentioned, in the Yugoslavia turmoil, a guy who was saved from death because he was a good guitar player. There was no electricity, no radios or tape recorders etc and the local Big Man wanted music. That saved him.

alex in san jose AKA digital Detroit

Sep 5, 2018 at 10:32 pm

At the risk of a 2nd post, here’s a good Selco post on when things get bad and you have to “lean” on gold, silver, etc. to get by.

“There are important and valid reasons to hold precious metals (PMs). Some of these reasons have little to do with PMs as a profitable investment or trade, but they’re beyond the scope of this discussion.”

Argentinians could also have bought USD-denominated assets (and many did)! And those that did after 2009 did phenomenally well in peso terms.

a reader

Sep 4, 2018 at 4:59 pm

Yes, you are precise in your writing, as usual.

Argentinians could (and did), but there have been governments that prohibited any forex dealings outside the official – and highly restricted – channels. Under those conditions the metal shines.

nick kelly

Sep 4, 2018 at 10:45 pm

However, they did not want to make the mistake of opening a US$ savings account (many did) at banks like Canadian- owned Bank of Nova Scotia.
The government suddenly seized them offering pesos in return.

BNS had women banging saucepans outside for months and exited the country at a loss.

The recent “d” has not shown up again. So for now, there is no more confusion :-]

Wisdom Seeker

Sep 4, 2018 at 4:12 pm

I have no particular expertise in silver, although I hold about 2% of net worth in silver as a portfolio diversifier and inflation hedge, so I thought this article would be interesting.

“Silver dollars” stopped being worth $1 in the early 1960s, whereas the Gold Window was closed in the early 1970s, so silver has a somewhat longer US$ price history than gold, but neither is particularly long by historical standards. Wolf’s chart doesn’t show the 1960s so I googled a bit and found that Wikipedia has a graph back to 1960, using a log scale to provide a better sense of the volatility during the low-price periods. (Remember a log scale graph provides equal spacing for equally proportioned changes.)

This chart from 1960 through 2017 spans over a factor of 100 in nominal price range:

One thing this chart shows is that a silver uptrend can be longer than 10 years. It was about 20 years from the end of the Silver Dollar to the 1980 peak.

The linked chart also reinforces Wolf’s point that over the long term, silver prices don’t gain ground on inflation. Today’s price on the inflation-adjusted graph has silver near its median valuation (relative to inflation). Silver might double or it might get cut in half again, but it doesn’t go to zero nor does it go to infinity. So it does provide a store of value independent of a fiat currency.

On the earlier thread, someone commented that precious metals prices tend to surge at times when real interest rates are expected to be weak, i.e. rising PM prices foreshadow a period of low interest rates relative to CPI inflation. Leading indicators being worth their weight in gold (!), I’d be interested in more discussion along those lines…

Mean Chicken

Sep 4, 2018 at 4:18 pm

Another observations is perhaps even more interesting is the price of palladium with respect to platinum which itself, is usually more expensive than gold by a wide margin?

MC01

Sep 5, 2018 at 2:39 am

Beware of industrial metals, such as platinum is.
[For those who didn’t spend five boring years studying chemistry platinum is chiefly used in electronics, healthcare and industrial processes]
Niobium, which is chiefly used in superalloys, has gone through three price peaks during its industrial history. We are presently in the eigth year of the great unwind of the third peak, which started in 2000.
Both previous peaks were followed by 20-something-years periods of lean cows for niobium prices, and it’s likely this time won’t be any different.

There aren’t any niobium miners going hungry and forced to sell their children into slavery, as this metal is a byproduct of tin mining.
Tin is another poster child for price manipulation, as up to 1985 prices were openly manipulated by the International Tin Council (ITS): as “red” countries such as the USSR were not part of the ITC, increased production from them led to to the collapse of the ITC and tin prices, which didn’t reach their previous levels until 2010. 25 years of lean cows, and then only China’s innatural appetite for commodities (not to mention some old-fashioned price manipulation by their State-backed traders) saved the day.

Nat

Sep 5, 2018 at 11:04 am

Both palladium and platinum are metals with a high industrial use,* a lower ratio of hording then gold and silver,** and BOTH platinum and palladium are rarer then either gold or silver in the Earth’s crust while also often being harder and more expensive to extract from the relevant ore. So if the market assigned things by actual real world value platinum and palladium should almost always be far more valuable then gold. The reality is though that the hoarders and manipulators can send silver and gold to wherever, while platinum and palladium have comparatively little volatility from comparatively little valueless-insanity-speculation and hording.

*(But are also recyclable)

**(platinum horders do exist, but palladium horders are almost unheard of)

Timothy Julian

Sep 4, 2018 at 4:20 pm

So what you´re saying Wilf, is wait around 5 years from the peak if lightning strikes twice? Basically it hit its high around 1980, with a low of around 85-86. So theoretically now should be a good time to buy13-18 (5 years)? Surely PM are a better hedge than the cryptos. Can bear markets last longer than 5 years in bear markets?

What if these markets implode as many predict? 1980, was one hell of a recession but the 2018 crash (if it comes) could be a lot worse. How did PM react from 1929, right through into the 30´s?

I bought gold around $1300 oz but I am not that bothered.

Frederick

Sep 5, 2018 at 4:26 am

Timothy Nor should you be I bought around 1275 and on paper I’m in the red but I know Gold will shine at some point so I don’t really care I sleep better at night knowing that Im diversified
As Jim Rogers says I’m not smart enough to pick the bottom

Silver initially dipped, then had a brief spike before going down again. If you bought Silver in the 1920s and you missed two brief spikes, you would have lost money until the 1960s, and then after inflation you would have still lost money:

In short if you had bought PMs in the 1920s you would have likely lost astronomical amounts of wealth by the end of the great depression unless everything was in silver and you closed out quickly in 1935, at which point you could have made up to a 52% return if your buying and selling was timed perfectly on the minimum and maximum respectively.

dave

Sep 6, 2018 at 11:05 am

I say 5 years as well. My observation is through production and reserves. Mexico produced 25% of current global production. At their current pacethey have less than 6 years left. Then unless the world finds a crazy amount of silver and producing it we will have 75 percent of current production. Then within 10 years after that the next country falls off.

Pete Stubben

Sep 4, 2018 at 4:21 pm

Imagine holding Google, or Facebook or Amazon or Microsoft — to diversify from the DOW stocks — over the long term???… PJS

Jaco

Sep 5, 2018 at 1:30 am

If I had invested in the FANG stocks a few years back and owned them right now —- I would sell immediately, especially Amazon.

I truly believe they are on the verge of being chopped up by our anti-trust statutes. And Facebook even if it isn’t chopped up Facebook is becoming a dying dinosaur.

How I know that is the mere fact that if I go own my own children’s and niece’s and nephews FB page’s there’s almost no updates in the form of photos or posts in the last 18 months.

Facebook is mainly only popular now with a segment of the population that many refer to as the ” Dumb Grandma’s ” and the over 50’s population that uses FB to argue back and forth over fake left/right paradigm.

There’s also the argument that social media platforms like FB have a ” peak ” interaction period that once the user reaches the peak or crescendo, the user’s interaction with the platform starts to diminish significantly as they become bored.

If I were a Facebook shareholder, I’d be a happy duckling to cash out my winnings and move to something else.

Valuationguy

Sep 4, 2018 at 4:32 pm

My theory about Gold is that it is USUALLY driven by the inverse trend of the currency is it priced against. For most of us in the U.S. that is the trade-weighted U.S. dollar index. This dollar index his a local low in mid-1995 and peaked in early-2002…gold (in dollars) meanwhile hit a local high in early 1996…and reached its trough in mid-2001. The dollar cratered through mid-2008 (while gold rose)…jumped into March 2009 (while gold cratered)…and then the dollar fell back to its low (while gold marched much higher) both in the fall of 2011. Then the trend reversed again in both.

Other than just the currency effect….supply and demand has general pushed gold higher as costs to extract and lower mine supply both have affected the economics.

The final affect….confidence in the gov’t (sponsoring the currency) hasn’t appreciably affected the price of gold in my opinion. Only when the gov’t’s viability is threatened does the “hyperinflation” affect occur (Venezuela, Zimbabwe, Argentina, Greece…..soon to be South Africa, Italy, Spain, etc.)

I was “lucky” to jump on the ride up from 2001 through 2011…but most of my financial colleagues were extremely skeptical and while the ride was highly profitable for our clients….the amount of professional disregard I received for my calls on gold was ruinous on my career…despite the correct track record.

I think the dollars has a couple more years (3-4) of running up given the problems with all its rival currencies (EM, the Euro, Yen, Yuan) which need to be shaken out first….but gold will probably start to run when people realize that much of the global supply is sourced in markets where the inevitable local currency crisis is going to disrupt production unless the gold price starts running up at the same time as the dollar does.

van_down_by_river

Sep 4, 2018 at 4:47 pm

I enjoyed your article and it’s always nice to review charts showing what PM’s have done, in nominal terms, over decades with brief moments of speculative fervor followed by years of indifference (the opposite of love is not hate, it is indifference). The charts seem to clearly show that indifference rules the day and, in general, people have lost their fascination with hoarding a costly metal of questionable value.

Of course, anything humans hold dear I will value, whether or not I believe it rational, because humans will give me things I want in exchange. However, there are so many other baubles competing with gold coins to attract human fascination these days (iphones, real estate, 1957 Porsche 356, trendy shoes…).

I can imagine living in a European village in the 1700’s and processing a chest of gold coins, so heavy and so shiny, how beautiful and valuable it would seem, but in today’s world there are many more fascinating objects to obsess over. Humans will inevitably tire of storing this metal in unseen vaults and the price will eventually collapse, I may likely be long gone before that day comes but I have no guarantee of that and so I see gold as a very risky commodity.

Interesting you didn’t mention the main reason most gold bugs cling to the metal – inflation of fiat. But just because one form of currency may be reaching the end of its useful life does not mean an ancient currency from a bygone era will rise up to regain its throne as coin of the realm – in fact it seems unlikely.

Wisdom Seeker

Sep 4, 2018 at 5:12 pm

Re: “But just because one form of currency may be reaching the end of its useful life does not mean an ancient currency from a bygone era will rise up to regain its throne as coin of the realm – in fact it seems unlikely.”

Nice rhetorical trolling. As though the global gold standard from 1970 was some ancient kingdom! Any monetary historian would tell you that our current fiat-currency system is the short-lived experiment.

Anyway, your final straw man missed the point: the true reason why some people collect precious metals is NOT that they will be restored as currency, but that they will remain decent, portable stores of value, always and everywhere, no matter what gets used as any given government’s next currency. Precious metals are also less easily confiscated by predatory governments than land (hello, South Africa), fiat-currency in bank accounts (Cyprus, Argentina) or businesses (Venezuela).

Tinky

Sep 4, 2018 at 6:24 pm

Precisely.

“Gold has worked down from Alexander’s time. When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.”

– Bernard M. Baruch

“No, it’s an an ancient currency from a bygone era…”

– van_down_by_river

Paulo

Sep 4, 2018 at 8:55 pm

Real Estate is a bauble? Tell that to the landless peasants of past.

Like everything, it is the 5 Ws plus + C.

Who, What, Where, Why, When+ Cost.

I have lived in small towns and one small city for most of my life. I looked around at the families who are the wealthiest and best situated. In many cases I knew them well, (some were school friends) and discovered many wern’t even that smart, at least no more intelligent than anyone else. In every case they are the descendents of those ‘who got there first’, and bought the best land.

Often, there are streets named after them.

JZ

Sep 4, 2018 at 11:33 pm

It is NOT about who gets their first, it is about how difficult for smart and heard working people to compete them out, it is about the force behind the widening gap.

Frederick

Sep 5, 2018 at 4:37 am

Again I strongly disagree When the sheeple finally wake up to how the parasitical money printers aka bankers have been fleecing is there will be a huge rush back into sound money( gold, silver and metallic backed currencies) In my opinion it’s just a matter of time
And no cryptos aren’t the answer Vulnerable to power outages, internet outages, etc etc

Buckaroo Banzai

Sep 6, 2018 at 10:25 am

If the power and the Internet goes out across the globe for any meaningful amount of time (i.e. more than a few weeks) 95% of the human race will die.

In other words, you’ll have much bigger problems than your inability to use your cryptocurrencies.

There are legitimate criticisms of cryptocurrencies, but in a world economy that is 100% dependent on electricity and the Internet, saying that cryptos have no value because they are dependent on electricity and the Internet isn’t a relevant observation.

Carlos

Sep 5, 2018 at 6:54 am

I guess you are implying that finally after a few thousand years of consistent behaviour, man has experienced a change in which gold holds no attraction. Why did we take so long to change, and why have we apparently only recently discovered that gold has no special function? Furthermore, why are central banks in the South Eastern hemisphere buying it in significant quantities since 2001? Is it because they are “backwards thinking” and we in the west consider ourselves not to be so? Why is the first asset to disappear from a nation in the throws of conflict, revolution or insolvency still gold (North Africa and Levant, circa 2011)? These are not sarcastic questions, I truly am looking for an answer that justifies our evolution from what was once (and may still be) a bank’s main form of reserve to our preference today for derivatives and securities which are essentially captive to or controlled by bankers.

van_down_by_river

Sep 5, 2018 at 7:12 pm

Gold is no longer used as money. Gold’s primary value was as money and it’s secondary value was for jewelry (baubles). Because Gold has lost it’s primary source of value it (mostly) has just intrinsic value and because of this it is vulnerable to a price collapse, in fact this seems inevitable.

There is much talk about the Chinese instituting a system that would allow for international trade settlements in gold, if the Chinese pull this off it could bring back gold’s luster. This seems like a long shot because 1) the Chinese government is openly corrupt and can not be trusted to not cheat and 2) it would appear the last thing the Chinese, with their enormous debt, need or want is a sound currency.

Carlos

Sep 6, 2018 at 6:46 am

Interesting points, thanks. You might want to examine more closely why China is introducing a gold element to their settlement transactions; precisely in order to legitimise their currency, not with the West, but with the rest of the world where the culture of gold is still relevant, and even more so after 2008. It doesn’t matter whether NY or London think China is corrupt or not; as you know, all but the US have already set up swap desks to deal with future Chinese trade and the transactions that most likely China will dictate the terms of. Consider the demographics of our countries and those of South Asia and Eurasia. Is there any risk that China is not prioritising its financial system to suit those countries rather than our countries? Very little risk IMO.

Buckaroo Banzai

Sep 6, 2018 at 10:28 am

“Gold is no longer used as money”

Really? Virtually every central bank in the world would beg to disagree. Because they all still keep gold in their vaults.

You are entitled to your opinion, but frankly, I’ll follow the lead of the world’s central bankers.

bungee

Sep 7, 2018 at 3:53 am

Carlos,
Gold is indicative of stability. That’s why it’s gone in wartime. Governments don’t need gold to keep their currencies in check – they put it on the gold standard to keep gold in check! Paper is always trying to declare what gold is worth. But gold trumps paper. Gold prices paper. Gold always wants to break free and be the boss. The Sun. Right now we do not have a currency pegged to gold but we do have a large paper market. So in a way it is an intermediate step between a gold standard and being totally set free from paper. In the 60s, the world realized gold was worth more than paper claimed and finally it broke free in ’71. Gold started pricing the world and the world was scared. So the world made it a commodity, creating futures selling, buying time. Gold is going to break free again. It has been gaining ground on paper all this time.

Mark

Sep 4, 2018 at 5:04 pm

Gold is historically a lousy long term investment when compared to real estate, bonds, or stocks.

I don’t understand why someone wouldn’t just want to hold shares of an S&P index in the event of high inflation: the number of shares outstanding are deflating through buybacks, and nominal profits will increase to offset the inflation in the currency supply. Getting taxed at the 28% collectibles rate rather than the 15% LTCG rate also hurts big time.

That said, I do own a small amount of physical gold (5% of net worth) that I hold more for the things I can’t predict than the things I can and largely aren’t that worried about.

JZ

Sep 4, 2018 at 11:24 pm

Gold is NOT investment. If you have faith in $ and want more $, then buy investment.
You want gold when you do NOT want $.

Gold is NOT at the layer of investment. Golf is at the layer of currency or financial system or ruling system of civilization, close to the layer of violence such as military and police power.
To talk about gold is to talk about very unpleasant things Wolf does NOT want to talk about. Those important reasons out side of the scope.

rj

Sep 6, 2018 at 5:25 pm

Since the turn of the 21st century, 18 years ago-

gold up 428%
s&p up 213%

There is no reason at all to own stocks or bonds.

d

Sep 7, 2018 at 6:18 am

If you cant buy gold at the bottom you picked, there are may reasons to buy anything but gold.

selectively picking a point on a chart, to make a pro gold argument, is weak.

If you brought between late 2011 and mid 2015, you are in a hole you wont get out off for over 20 years, barring major world conflict spikes.

The last 2 times to BUY physical, were in mid 1970 I was to young. And early 2000 when I added a little to my inheritance. (The chinese were buying big time bullion stock internationally, then, not just normal consumption market requirements, always an indicator)

There may be another buy point in the late 2020’s early 2030’s, barring major world conflict spikes.

RD Blakeslee

Sep 4, 2018 at 5:13 pm

“There are important and valid reasons to hold precious metals (PMs), some of which have little to do with PMs as a profitable investment or trade, but they’re beyond the scope of this discussion.” – Wolf

Why would a reasonably sane and intelligent person listen to Alan Greenspan about anything?

John

Sep 6, 2018 at 10:39 pm

Because he was right before he was wrong.

Michael Fiorillo

Sep 7, 2018 at 7:26 pm

Why, because he was an acolyte of that bag lady, Ayn Rand?

Crysangle

Sep 4, 2018 at 5:34 pm

I have never been able to equate gold in fiat terms, to me the choice has been always either or. Although notes and everyday coins are tangible in a way, they really do not compare with gold (or silver) – put same amount of both on a table in front of you and I think you would notice that you are not dealing with the same world, even if they are interchangeable and can both be used in payment. So to me this is the reason for owning gold, it represents a completely different set of ideals that are as straightforward and unencumbered as they are reliable and commonly understandable.

looks at how gold was likely administratively appropriated from common use to create the first coin, a process that also eventually led to pseudo fiat or imposed values at various points in time. To think that up to half a decade ago gold was still reference gives a clear idea of how persistent a base reference it is. Even modern fiat is a hypothetical extension of the notion of stored inherent worth that originated with money that actually held its own independent appeal. Though invented tokens were also used in some societies, these were not in themselves recognisable as of value outside of their installed administrative system. That we now have global admin maybe is what makes some think this time is different…well just as long as that admin is in place I think, and that makes the “the average person” actually dependent on perpetuating it, whether doing so is right or not.

This second pdf link is quite a readable history on gold. It goes at a slight tangent here and there but still offers a broad overview on how gold was taken up over time.

I’ve posted this before on this site a year or so ago and will mention it again :

I once read on an investment themed site that 9 out of 10 Americans have never held a real gold coin in their hands….

My feeling is that for many, if they ever get to pick up and hold 20-dollar Saint or Liberty, the magic will take hold they will feel similar to which you have stated above.

Once you pick up one of those coins and hold it in your hand for awhile,you understand the term of quality.

Crysangle

Sep 5, 2018 at 8:27 pm

…and there is the irony, it is something you think twice before parting with , like a glove that fits. As a conjecture, that would explain why gold as currency is not encouraged, because there is a clear recognition of existing worth that highlights or overpowers any attempt at reducing transactions to simple accounting, and that therefore places recognition on current ownership of gold , hence power to the owner. In fiat, the currency itself is accounting, a note is an accounting credit that is not worth anything much in itself and is property of the issuer, until it is exchanged for something more tangible. People can like holding fiat for imagining what they can do or buy with it, what they can exchange it for, but of itself it is really quite empty, troublesome sometimes, something meant to be disposed of even. Gold is quite neutral in the sense that it is a simple welcome material, even if minted as coin it does not have the complex vanity fiat has, just an added stamp of approval which is designed to at the same time embellish it, not replace.

So maybe from that we can see how fiat is designed for a destination of transactions in the push sense, whereas gold is more like an invitation to the other to negotiate and transact. Obviously there is some overlap because fiat still draws on the strong memory of previous transacting of actual worth as was with gold, and gold transactions also have their element of accounting. The two will therefore give very different results in how a society operates, how people approach money, how they consider their own position. All that is even before we add any of the obscure manipulation, both financial and political, that embeds itself with the fiat process. At least with gold, if you were taxed, someone would have to stand being stared in the eye as actually taking your property – there is no mistaking and their accountability is unavoidable.

Well you got me started there, and it is just me musing out loud, for what it is or isn’t worth.

Bookdoc

Sep 4, 2018 at 5:40 pm

I wanted to add a quick story from when I was younger and knew nothing about gold or silver. I had worked in fast food management and would watch for silver coins in the drawers. I would exchange coins and keep the silver ones. We got in a jam and needed funds so my wife told me to see what I could get for it. The dealer told me silver was at $40/oz and, of course, offered me a bit less but I still got WAY more than I expected. Shortly thereafter, I read about the Hunt Bros trying to corner the market and the price had dropped drastically. Just dumb luck…

Gideon Kuroda

Sep 4, 2018 at 6:01 pm

One thing that the article does not address is the confidence in central banks.
When it is high, pm prices are low and vice versa.
We are in an unprecedented experiment, where all the central banks are debasing their currencies at the same time and none of them are backed by something.
The Greenspan put led to the Bernanke, which led to the Yellen put and now the Powell put.
The tapering has been laughable when looked at on a chart.
The experiment has been kept in control at the exception of 2008.
When will it collapse? Nobody knows, but it certainly will at some point.
There is no way that this monetary expansion goes unchecked.
At some point, central banks will loose the control and they will have to print much more.
Nobody knows if it will turn deflationary or inflationary,but there definitely will be a sharp monetary crisis.
In both cases, the confidence is central banks and currencies will also be lost.
The dollar might still keep the best reputation, but pm are likely to shine at that time.
The question is how long till then.
Can it continue like that few years more? Ten years? More than that?
All that the printing has done is to suck the money from the economy to make bubbles in all financial assets.
Real estate seems to have met its limits in many countries, as people can no longer afford insane prices and rents, which have no more relation with reality.
Stock prices are also very high with unreal PE ratios in many markets, especially in tech.
China is in overcapacity in almost everything with loads of debt.
Now, Trump is starting a trade war, which might spread at some point, even if it is more or less under control now.
This might pop the bubble,but I dont know if the central banks will be able to return the situation with printing this time.
The cycle in PM depends mostly on that.
While the 20 years theory (kondatrieff) seems sound, it might not apply in the current conditions, as the monetary policies have simply turned insane.
In addition, EM currencies are also in a bad spot at this time.
This could spread to the periphery of China and Japan and also easily into Europe.
The bull market in stocks is also 9 years old, which sounds clearly bad.
If central banks keep control at the next crash, good for them and all of us, and pm will continue their slow agony, but production prices seem quite stable.
The question is also how much will they have to do for that (qe, helicopter money, negative interest rates…).
If it is too much, the confidence may start to falter.
It’s very hard to time the end of this cycle for the bear market in pm.
7 years seems early, but the conditions are pretty weird.
A bottom also looks to have built around 1,200 $ for gold.
Hard time to be good at timing, as nothing is really safe at this point.
PM should still be the safest on the long term, but there is surely some rough road ahead.

Vadim

Sep 5, 2018 at 4:56 pm

We should take into consideration the scenario of a long readjustment for everything economic. Not some well defined crash like 2008.

Something involving steady and accelerated CPI inflation coupled with all sorts of bubbles popping, throwing more money into other bubbles. Or massive reserves being consumed throwing more money into everything. Chaotic, but slow and long process, impossible to predict.

We can only attempt to predict changes in the relative prices for goods and services. Like how many eggs will buy a condo, for example. Who knows what happens with $ or € or whatever… Thinking in terms of $ makes it way too complicated in the long run, imo.

Anyway, keeping gold is a great thing to do. Not for speculating in $ value, but speculating in food&shelter value. I hope I can buy a house with an ounce of gold in 10 years :) . Or a goat with an ounce of silver ;) . Or a large farm with a BTC :) . One of the 3 happening would be awesome!

In terms of crypto, I find bitcoins to be an electronic gold equivalent while all the others being worthless rocks. But only if this electronic age continues.

There are risks with everything, obviously.

Thank you for the great articles, Wolf!

Juanfo

Sep 6, 2018 at 10:20 am

Can confirm. EM here. Currency devaluation accelerating. Fear is rampant. Currently hoarding rounds boxes and 55gal drums of diesel. Hold no gold. What would I even do with it?

thejerkstore

Sep 4, 2018 at 6:23 pm

I started buying Au and Ag in 07-08, I’m probably into gold around the 700-750 mark, silver 11-12 range. Didn’t buy anything else or sell anything during it’s run up. I’ve probably got 30% of my net worth tied up in it. After it’s all said and done I’m either going to wish I had put all of my money in it or none of it.

Cashboy

Sep 4, 2018 at 6:46 pm

I started buying gold since June 2013 on the basis of believing that QE would lower the value and credibility of FIAT.
I am only up because I changed my British Pound into physical gold and the price of gold is up on the British Pound.
I am inclined to buy more gold because I am reading rumours that the ECB is thinking about stopping the insurance on bank deposits of 100,000 Euros and £80,000 in the UK. I remember well Cyprus took 38% of bank account balances above the 100,000 Euros a few years back.

HB Guy

Sep 4, 2018 at 6:53 pm

Wolf, great article as usual. Our views on gold and other PMs aren’t so different, after all. And I’m very happy with my Gold Maples.

Gold is no one else’s liability, and for that reason, has been a store of value for thousands of years. Yes, it does run in long cycles, and as you’ve stated, they can be long. Patience is a virtue that is always in short supply.

One final comment, or opinion, as you prefer. Platinum, based on rarity and supply (diminishing rapidly) seems the most undervalued of any PM at this time. The spread between Au and Pt is now over $400, and supply is increasingly constrained. I wouldn’t take a big position in it, but a few rolls of Pt Maple Leafs may not be a bad buy at these prices.

John M

Sep 4, 2018 at 7:14 pm

Wolf

Some sage words from a guy that doesn’t hold short term paper any more or US Treasuries.

Addition thoughts, while gold does not pay a dividend a selection of gold stocks in the last two years in Australia are up 30% on average so looking at the gold price, one also has to look at the currency of your country.

Bobber

Sep 4, 2018 at 7:37 pm

Why do central banks hoard gold?

Perhaps they think we might return to a gold standard some day, which seems plausible after this unusual period of extreme monetary debasement and fiscal irresponsibility is fully exposed for what it is.

d

Sep 7, 2018 at 6:31 am

NO.

For the same reason FDR made it illegal for people to hold gold

To force them to use the worthless state fiat.

Try paying taxes in gold, at the best the will take it from you and convert it to fiat at a very bad rate with a huge surcharge. In any state with asset confiscation laws, they will simply take it, then tell you to pay your taxes or else.

In places where it is readily available, people still use it.

Finster

Sep 4, 2018 at 7:48 pm

Such long cycles put a lot of emphasis on time frame. Those of us who bought in the early 2000s have had a pretty positive experience even considering the recent bear market. Gold trounced the world stock market for more than fifteen years from the beginning of the 2000s.

Of course that had a lot to do with peak stock valuations at the beginning of those fifteen years, in addition to gold having been cheap.

The takeaway for investors is not to get infatuated with any one asset or asset class. Buying only stocks or only bonds or only gold is apt to yield a tough slog over some substantial stretch of an investing career. I think of gold as an important element of a portfolio, not a portfolio in its own right.

Laughing Eagle

Sep 4, 2018 at 8:01 pm

Gold is a long term investment something you hold as an insurance policy against a currency falling in value and it has especially since 1971. It is not to be traded like paper securities. The buy low and sell high is not for gold as the price can be manipulated in the futures market where paper gold is not backed by physical to the extent of the volumes traded. Currency values also can be manipulated with stories.
One can take the price of gold and compare it to car prices to see how gold holds its value. I bought a 1968 Pontiac Firebird for $2300 and today that car costs about $29,000.
In 1973 when I bought my wife’s wedding rings, gold was $90 an ounce. Both are up 450% and 450 divided by 45 is 10% inflation average per year on the dollar.
Gold some old relic that does not pay a dividend. Please come up with some new excuses Wall Street.

Malthus

Sep 6, 2018 at 8:47 am

Especially when dividends are often paid with borrowed money.

Bobber

Sep 4, 2018 at 8:04 pm

If major currencies lose about 3% of their value each year to inflation, shouldn’t one expect gold to gain about 3% per year, all else equal?

For example, if the USD has lost 97% of its value to inflation over the past 100 years, shouldn’t the price of gold have increased by about 3300% (in USD terms) over that same period, all else equal?

I think this is why people hold gold, especially today when hyperinflation of major currencies (official or unofficial) is a potential outcome if not an unstated goal central bankers.

With debt levels and fiscal policy at today’s unsustainable levels, I would say hyperinflation is more a threat now than it ever was. What if the currency ills of Turkey, Argentina, and Brazil spread to other markets? Hyperinflation remains the most painless (and spineless) way to exit a debt crisis.

Wisil

Sep 4, 2018 at 9:45 pm

This a good point, but inflation at 5-6%, not hyperinflation, will get you out of debt after several decades, without panic, and in my mind, this will be the preferred method for the US. The key is for the FED to keep telling the public it’s only 1-2%, and have them believe it. Unlike Zimbabwe, Venezuela, and others, when you have a reserve currency, and keep inflation moderate, you can get away with a lot more. It just takes time………

Ambrose Bierce

Sep 4, 2018 at 8:55 pm

In the 1800s it was gold, land and cattle. Beef used to be a staple, now it is a boutique item. Land is interesting although all investments are leveraged. Gold is leveraged, and the problem is when the market goes up investors want shares in momentum companies, and when they sell they sell everything. Nobody knows what will happen when paper assets fall out of favor.

Wisil

Sep 4, 2018 at 9:28 pm

Buy gold mining stocks, or preferably GDX. They pay a small dividend, have no storage hassles, no big dealer buy/sell spreads, and the long term profits are taxed at long term cap gain rates, not collectible rates. Their price rise is magnified over bullion (but so is the downside). Lastly, if the price drops, and you have to sell, you can at least use the loss for tax-loss harvesting. Don’t go crazy, keep it at 5-10% of your portfolio. Thanks Wolf, for an interesting piece without the typical gold bug (or bear) bias seen so often on the internet.

kevin

Sep 5, 2018 at 12:48 am

Nope, nope, nope and nope. Most of the comments here are misguided and lurching all over the place with “gold fever”. lol.

“Short” answer: If you think PM is the be-all-and-end-all, then easiest route is to short paper gold/silver such as GLD/SLV (including GDX miners who don’t actually hold enough physicals vis-a-vis their dubious accounting :) and go long on physical PM and take delivery.

Long answer: My view is that PMs are actually useless for BOTH a global depression scenario or if the economy chugs along fine (despite the usual ups & downs). PMs are useless as insurance against anything too.

Imagine a SHTF scenario with general breakdown of law & order. Only a fool will carry around and use their Gold/Silver for exchange or currency.
You will be killed or you will be followed to your stash, and then killed.

In such a scenario, ’em shiny metals will only attract your death. Your only insurance is your wits and your skills say in shooting your gun accurately, knowing how to grow your own potatoes, exchanging your useful skills as a car mechanic for food, or how to trap cats or stray dogs or pigeons for food etc. You are a fool if you think your stash of gold is going to last at most a few months, or if you think your neighbors aren’t going to wise up to the fact that you seem to have an unending source of gold with which to exchange for food or other necessities. lol.

In any case, suppose that even if you had say 100 ounces of gold on hand, the barrel of bread in a depression scenario will probably cost you 150 ounces by then, and then what are you going to do? Eat the gold instead, just to feel satiated for 1 more night?

On the other hand, if the Central Bankers were right all along and the economy booms and everything is hunky-dory. Then, by default, your PMs becomes a very poor investment versus the general stock market, besides being a lengthy & pointless exercise, except maybe acting as a psychological salve while you hug your gold coins to sleep, and while you watch listlessly as the stock indices keeps on climbing and climbing…

IMO, PMs are only somewhat useful in a very narrow set of circumstances under moderate economic conditions. But ironically, if economic conditions are moderate, your Gold is not actually being useful as insurance right?

In conclusion, Gold doesn’t work as personal insurance in a worse case scenario, and neither does it work as a sensible investment in a hunky-dory scenario, and it is just not that important under moderate economic conditions. So, why the heck do you bother with holding PMs unless you are a government or intend to start one. lol.

bungee

Sep 5, 2018 at 3:12 am

Kevin, you make some good points.
However you minimize the value of a “psychological salve.” Gold holders are able to sleep because they know where their wealth will be when they wake up. Those watching the stock indices climb are sweating bullets. This is true especially as we hit all time highs in both the markets and the debts. Gold is awesome in this environment.
There is a scene in the movie “the road” where the guy leaves a bunch of gold because it is worthless in his hellish, post-apocalyptic world. But things might not get that dire in this century. Money moves very fast. Waaaay too fast to allow escape in a panic. We may find ourselves not in a war-zone or zombie thriller but working a lot more for a lot less with fewer guarantees. People may eat their animal friends but money, and the printers of it, will definitely still exist. Look at Venezuela.
Gold is a very popular way to store wealth despite “negative sentiment” that analysts talk about. Many, many people all over the world, even Americans! own gold and these same people will set up the systems ensuring a safe market for holders of gold to do business. It is not a coincidence that central banks hold gold. They played a large role in setting up the current system and IMO will do the same for the next. Its just the way central bankers are. But with gold -and only gold- you and I can go along for the ride.

kevin

Sep 5, 2018 at 7:06 am

bungee, that’s why I mentioned: “PMs are only somewhat useful in a very narrow set of circumstances …”
(i.e. if we don’t end up in a truly apocalyptic situation, but somewhere between a short-term civil disorder/national emergency declaration and there’s still some semblance of a central government in your area)

Your assumption that gold has utility as currency only works if your “same people will set up the systems ensuring a safe market for holders of gold to do business…”
Which is exactly my point.

Now, who do you think these “same people” will be, if not some form of existing central government to setup these “safe market” and systems?
If that is the case, don’t you think a functioning central government will not first confiscate all your gold holdings and/or issue new scripts (i.e. new paper) as replacement? lol.

Incidentally, this is what happened during the American Civil War, with the issuing of new confederate dollars, which eventually went to zero once they lost the war. No government will allow the use of gold as a working currency. The same scenario has happened in many other countries before.

Fyi, Venezuelans are hoarding US dollars and prefers it for their daily utility. lol. Clearly, USD is still the de facto currency of choice, so many are not aware how lucky they are earning USD now.

Once again, a fish in water knows not the value of water all around them… until they find themselves on dry land.

Sure, it’s not the US, but there is that margin in the world for use even under current circumstances. I am guessing wealth is being moved via gold out of China and the likes also…or are they all using crypto or some other scheme?

Frederick

Sep 5, 2018 at 4:51 am

I’m calling a nope on your comment Kevin and it’s not gold fever it’s “sound money” fever You keep your fiat and let me know how you make out when TSHTF

Crysangle

Sep 5, 2018 at 7:26 am

As bungee says. Owning gold is a bit of an immersive experience which is not constantly in mind but always present. It is not really for an apocalyptic scenario, where it might or might not help, but for day to day reassurance in an uncertain world, even if not used. Personally I like to relate to it as a reference in value outside of fiat, above fiat no matter what the current price is – it is its own value which can be used one day if needed or chosen. There is no search for profit involved in that. In practical terms it is a good way to save, something like an empty gauge when you find you wonder if it should be used for this or that, as normally the idea is not to spend it except as last resort, and if you cannot get hold of some fiat then normally you are overspending anyway and should adjust. For me there is a further step before sale, and that would be to pawn some gold if cash was importantly needed… the incentive is to repurchase the gold or the transaction would end up a small loss. It teaches you a lesson also that way. I know many people have large accounts etc. and so what I am saying will seem trivial, but then I don’t do debt and am a pay as you go sort, it is as close to real use of gold as currency most will get under the current environment. So in all I find it lends a kind of slow weight to how I go about handling my accounts, a reassurance and independent confidence, even though it just stays stored. Maybe the best though is that it reflects away all the conflict and small argument to do with fiat, because really gold is saying “That all means nothing to me, nor does what people imagine they think they know or how important they would make themselves be matter, I am my own” . When your world is fully tied into fiat you are never more than someone else would have you be, as it is not considered yours…it would just seem a bit extreme and probably stupid to place your whole existence on a reality like that rather than hold at least a token of an alternative to compare it with.

kevin

Sep 5, 2018 at 8:48 am

Yes Crysangle, again it goes back to my point that gold is only useful in VERY limited scenarios.
In almost every spectrum of a national emergency, it is impractical and dangerous for the reasons I already mentioned.

Even as a bribe or for use in a war zone, you risk getting killed immediately once you display your gold coins to try to exchange something for it.
A gold watch or small gold jewelry is probably a better use as a bribe during desperate times.

If and when you intend to use your gold coins or a gold watch or even pawn your gold jewelery, it already means you will likely be getting creamed by a extremely large bid-ask spread. Your gold buyer will depress your asking price by a huge margin, even in the best of times.

So the final value that you get back upon pawning or selling your physical PMs will hardly be worth the long-holding periods without interest.

And yes, it need not be a civil war or a global apocalypse.
Just take Hurricane Katrina in 2005 for instance, ask those who went through it whether they would much rather have a store of food and water and a handgun or be lugging around a bunch of gold coins? lol.

As a human being, we are ALL tied to some system or other, whether you want to admit it or not. We are not built as an wild animal like a bear or a lone wolf that can survive as an island unto itself.

You can try to be your own person, thats fine and dandy, but a functioning human (and humane) society will always be a better system for us. In other words, a group of humans with a functioning government issuing fiat. They government may be corrupt and debase your fiat, (so work within the system via democratic processes to slowly change it) rather than hoard gold in the hope that it might get “useful” someday.

In an everyday setting, you would also get more bang for your buck “investing” your time in other financial vehicles such as property or the stock market or learning a business, or in other areas of your life, rather than be immersed and self-absorbed counting your little gold pieces in a dark basement somewhere.

The more time you spend caressing your physical gold for whatever emotional or psychological insurance, the more you will realize it is all a foolish waste of time, from a practical and some might say, even a spiritual perspective.

Crysangle

Sep 5, 2018 at 9:09 pm

Oh I don’t overdo the line, and I agree with a lot of what you are saying. As the gold I find by detecting I am out and about all over, and better still come across some truly amazing objects. It doesn’t live in the basement but in a hand cream pot buried a few inches down in an unprotected garden for anyone to find if they knew. I just think it is good to be something of your own bank. As I now know something of the street level gold world, well I will guess I am less likely to be ripped off at any point… should get friendly with gold dealers, they know. Big gold is probably better somewhere likely safe, an escape country and vault stored, with just enough to get you there at hand…not to put people off dedicating to own country and storing at home if that is their opinion, without a variety of choices being taken by people it is all or nothing, something I don’t much subscribe to as diversity, freedom of engenuity, is a very powerful solution that is usually underated due to it not being herd ( for want of a better or kinder word) advertised…follow the herd and don’t herd doesn’t quite catch. I’ll give a good grade to people who know proper teamwork too though. :-)

Ambrose Bierce

Sep 5, 2018 at 12:25 pm

Points for your investment strategy. If you have a side in the market you want to own that side, and use the paper, options, etc to hedge.

Cynic

Sep 5, 2018 at 12:53 pm

During the Peninsular War against Napoleon, a British officer stopped a peasant with a mule laden with bread – the troops were sick of hard biscuits and beef.

He offered an English gold sovereign for the bread – far, far in excess of the value of the load of bread. Jackpot time for the peasant.

The peasant thought a little, and said:

‘ Your gold can’t buy bread for my children. Adios.’

Being a gentleman, the officer let him go.

Wisdom Seeker

Sep 5, 2018 at 2:22 pm

Kevin – if SHTF where you live, yes, you want guns and skills more than gold. BUT the people with the gold will NOT be there with you. They will move, and they will find a way for their gold to move with them and help them resettle. Or it will be carefully hidden until the dust settles and they return. Either way they will stay rich while you will be risking your life. I’m not saying that’s the right thing to do, just that it’s what will happen.

That’s why the other commenter above pointed out that the PMs tend to get mobile early on in a civil unrest. Gold seeks out the places where the rule of law remains strongest.

RagnarD

Sep 5, 2018 at 8:15 pm

And furthermore Kevin,
Note that in our current scenario,
Where ppl are getting rich on real estate, BTC and FAANG stocks, they are not actually buying things with, BTC, little bits of actual stock certificates or tiny little bit sized plots of land. lol.

So I’ll leave it to your imagination as to how a good holder might actually buy something when his gold coin hits $20,000 oz.

And Mind you he’s going to be just as bummed as the holders of BTC, FAANG, and Silicon Valley real estate about the hassles of converting all that profit to currency. lol

RagnarD

Sep 5, 2018 at 8:04 pm

Kevin,
Are you simply noping away the fact of huge gains in gold in both the 1970s and 2000s? Would you say nope to that money. lol.

And what’s the deal with this Bitcoin?
I’m not a fan in total, but I get / like the spirit of the cryptos. Are you noping their reality too?

MooMoo7665

Sep 6, 2018 at 5:00 am

True.

In a real Mad Max scenario… it is only food and safe/arable land with water that counts. The window for outsized gold performance will be a small time=frame along that road… if that’s where we go. You’ll need to be nimble.

Also, gold’s ‘portability’ is in serious question these days.

MC01

Sep 5, 2018 at 4:07 am

Always remember which country is the largest gold producer these days.
That would be China.
And what company is the largest gold producer worldwide?
That would be the China National Gold Group Corporation.

I am not advising to buy shares in the latter (in fact said their shares have been doing horribly), just that many gold companies owe their ridiculously high share prices to buying a lot of ad space to mislead “gold bugs” into believing they “punch above their weight” while in reality they are small or even marginal players and should be treated as such.
Again: nothing wrong with investing in a small company, but try reading through the hype.

Shaggy

Sep 4, 2018 at 9:34 pm

Do these ‘cycles’ match oscillations in global gdp or are they the result of isolated events of rampant speculation based on either empowered individuals (Hunt brothers) or cheap money (post financial collapse).

Precious metals are technically still doing very well since 2000, but I see no reason to assume there is any cycle at all. Cheap money breeds the consumption of metals appears to be the trend.

Subtract cheap money and the price collapses. Not sure what the restoring force is to create a genuine cycle. You would need correlation with something else.

Sinbad

Sep 4, 2018 at 10:50 pm

I have been buying gold and silver since they started QE and I have lost money. I bear the cost as it’s insurance, and insurance always costs.
However we price gold in dollars, but what is the value of a dollar?
If I compare the price of gold to commodities, absent from manipulation and subsidies, such as wheat, things look a lot better.
The more money a nation prints, the less it is worth, I know that the US dollar is not currently showing its debasement, but I believe eventually people will realize just how much the US dollar has been debased since Nixon defaulted on the Bretton Woods agreement.
When will that happen, who knows, but sooner or later reality will prevail.
All other national currencies have been debased to keep in step with the global reserve currency, so all nations are printing to infinity, and the whole world will suffer when the bubble bursts.

BlueinTX

Sep 5, 2018 at 12:58 am

This mirrors my experience with PM’s.
I learned over the years that if you wanted to invest in PM’s you don’t buy the metals, you buy shares in miners, refiners, gold distributors, insurers etc.
My personal exposure to gold/silver is nowadays as a hobby numismatist. There is a lot of art, history, stories and beauty in a coin.
Imagine holding a Rothschild Love Dollar from Frankfurt in your hand, or a gold histamenon of Basil II the “the Bulgar-Slayer”, or a coin of Bayezid the Thunderbolt!
There is a lot of enjoyment in doing the research into the history of these coins.
Also, you insulate yourself somewhat from the vagaries of the market, you just don’t care that much what the current gold/silver prices are, since you are holding a historical artifacts, which incidentally sell for a premium too!

“The last downturn in gold lasted from the end of 1980 to 2001. That’s 20 years!”
Yup. And if you wanted to maximize your gains and cash-in you’d have to sell in 2011. That’s 30 years!
People that are making “investments” shouldn’t be buying gold.
Why invest in a market that makes no sense? It’s now established that gold is not a commodity. But it is traded as one with a futures market and ETFs. But this makes no sense! As the article explains, the supply is still above ground so it isn’t like we have to lock in future pricing for wholesalers. And gold isn’t used in industry so why have a paper market at all? It’s not like we need to lock in pricing for manufacturers.
Gold is not an investment. It’s payment.
And if what I said isn’t true and the paper markets are sound and reasonable with respect to gold, then there is no point in buying physical over paper. It’s just as good to put one or two percent of your portfolio into GLD as it is to purchase the real thing. So then what? buy GLD low and hold for 10, 20, 30 years and then sell high? There would really be no point for physical gold to exist at all. think about it.

Gold Newbie

Sep 5, 2018 at 1:17 am

I’m kind of new to gold; I want to purchase some gold, but don’t know which online dealer is the best. I’ve narrowed it down to the following 5:

APMEX seems to have a lot of bad reviews. So, I was wondering if JM Bullion, or Provident metals are OK to purchase from. Also, can these deliver in Canada as well, or for Canada there is a better way of purchasing gold?

cd

Sep 6, 2018 at 12:38 am

Gainsville coins .com

Dal

Sep 6, 2018 at 8:07 am

If in Canada, Border Gold in White Rock B.C., reliable.

Malthus

Sep 6, 2018 at 9:11 am

Kitco

ML

Sep 5, 2018 at 1:18 am

I don’t like gold and don’t follow its ups and downs. As far as I am concernd, the only attraction of gold is portability So if I were to like gold then I’d buy shares in gold mining companies. Some years ago I bought a few shares in Solomon Gold but wanting to buy my wife a Christmas present I cashed in only to watch the share price rocket a few days later.

But I do like silver and used to collect silver teaspoons. I stopped collecting when the price was manipulated. Probably that it when I shoukd’ve sold because the oz selling price has never been as high

ML

Sep 5, 2018 at 1:26 am

ps I forgot to add that quite possibly the only reason gold is traded is because over the centuries it has been used and come to be regarded as a store of value. A store of value means the price can be geared to confidence. It is confidence that has the value, not the underlying instrinsic worth of the commodity; that is mostly scrap.

kevin

Sep 5, 2018 at 2:24 am

I probably said this before but it bears to repeat it again for clarity’s sake:
Gold is useful as a store of value PROVIDED you have the means to protect that store….literally.

It makes sense for governments (and kingdoms of old) to use physical PMs as store of value and collateral between sovereign governments, because only a large enough government can have a deterrent (military) force in place to ensure the safety and security of a gold vault, and “enforce” its value.

That is why USA stores her gold beneath Fort Knox and places it within miles of a tank battalion. The same goes with many other sovereign nations.

If you were to personally store gold yourself, any small armed street gang can easily overpower you and simply take your gold and beat you to death.
Even if the street gangs don’t get to you first, your government can and often do confiscate your gold during dire (economic) times. So, there goes again your silly efforts in hoarding gold in preparation for precisely those dire times ;-)

Basically it becomes a Catch-22, if you don’t trust your government, you take delivery; but then the “untrustworthy” government will certainly confiscate your gold too. If you trust your government, you allow your gold to be kept by the authorities, and who knows if you can redeem them in a bad situation, right? lol.

That is why I said hoarding of physical PMs only makes sense for governments or if you intend to start a government. The Kingdoms of old and historical warlords often used their gold to feed their armies or otherwise stave off any potential military revolt.

That is why physical Gold is also termed as a “barbarous relic” because it will indeed be a barbaric time, if your Gold actually becomes “useful” to your aspirations of becoming a local warlord and/or in raising an armed militia.

I for one, would certainly prefer the economy to go hunky-dory. Contrary to a deemed “golden” age, it won’t be nice to live life under a barbaric dark age of common use of gold pieces as currency; so I can never understand why so many still cling onto ’em shiny metal.

Tinky

Sep 5, 2018 at 5:01 am

“That is why physical Gold is also termed as a ‘barbarous relic’ because it will indeed be a barbaric time, if your Gold actually becomes “useful” to your aspirations of becoming a local warlord and/or in raising an armed militia.”

With absurdly amusing straw men like the above, it’s no wonder that you fail to understand why many people hold gold.

kevin

Sep 5, 2018 at 7:16 am

Tinky, if you are able to give your own specific counter-arguments to debunk what I stated above; then perhaps you might not be so quick to put label on so-and-so as a “straw man”.

I’ll be keen to hear your logical points on “why many people hold gold”, which may convince me to change my mind about the “barbarous relic”, but as of now all I hear are emotional responses to a largely emotional relic. lol.

Setarcos

Sep 5, 2018 at 9:23 am

Kevin, I may have missed it, but have you or anyone addressed storage of physical gold in safe deposit boxes? When I opened a box a few years ago, there had been some changes to the agreement that were prompted by the Feds according to the bank rep. Specifically, as I recall there was new Language around their rights to access the contents, etc. It appeared that in a shtf scenario, it would be easier for them to access the box than me!

Cynic

Sep 5, 2018 at 12:59 pm

The worst case in Argentina was of a man who was tortured to death to reveal where the rest of his gold was -they had found one gold coin in a flower pot.

It was all he had.

Tinky

Sep 5, 2018 at 1:01 pm

Kevin –

First, I shouldn’t need to explain why the quote of yours that I produced is a ludicrous straw man, as it should be obvious to anyone who has given more than 10 seconds of thought to the issue that virtually none of the countless people who hold physical gold are either aspiring to win some form of lottery, let alone to become “a local warlord and/or in raising an armed militia.”

Now, I understand the context of your post, but the facts are that gold has proven to be an exceptionally good store of value for individuals through economic crises spanning thousands of years, and there is nothing in your entire post suggesting that it won’t prove so again when the next crisis unfolds.

It is entirely possible to store small, or even larger amounts discreetly. “Street gangs” would need to be aware of one’s stash. Larger amounts can also be stored in different countries, and in segregated safe storage. Governments are potentially more problematic, but there are also work-arounds for that issue.

You are arguing that it will be different this time, with respect to gold. But given its very long history, coupled with the fact that Central Banks continue to horde it, while the biggest debt bubble in history is certain to burst, it is very difficult to see how Governments could successfully rationalize penalizing those who “save” in bullion, when it (yet again) outperforms the paper markets during a crisis.

Is it illegal to own in Venezuela? Argentina? Turkey? No. Did not the citizens of those countries who exchanged at least some of their fiat currency savings for gold a few years ago benefit tremendously? Yes. Were there *many* of them? Undoubtedly.

Now, if you want to confine your argument to the U.S., we can talk about that. But barring a World War that unfolds incredibly quickly, it is almost impossible to imagine a scenario in which there would not be plenty of time to exchange gold for other assets as it rises sharply in value.

People hold gold primarily as a form of insurance, or wealth preservation. They do so because it has worked extremely well in that role over a very long period of time, and a strong argument can be made that another major economic crisis draws inexorably nearer.

Given gold’s long history, the onus is really on you and the other naysayers to explain why it might be different this time, rather than those who are expecting a similar result to those that have occurred over thousands of years.

RagnarD

Sep 5, 2018 at 8:32 pm

Why own gold?
lol
Where are we In the real estate valuation cycle, where are we in the bond valuation cycle, where are we in the stock valuation cycle?

Where are we in the money printing cycle? Where are we in the gold valuation cycle, look at gold graph recently? Why own gold?

Oh, Kevin, I’m sorry. You’re one of those buy high, sell low investors. Sorry. Never mind me.
In your case I Recco Buying Netflix and a “unit” in Sydney.
lol

kevin

Sep 5, 2018 at 9:51 pm

RagnarD, sorry to disappoint you. My real-estate portfolio is doing very well after I bought in strongly during the lows during the last financial cycle in 2008/09. I’m selling some of that now while keeping some which gives yields far better than dead-weight PMs, earning no interest.

In case you think I’m gloating, I did lose money in real-estate before but overall I made a lot more of it. Same goes with my stock investments over the last 8 year run-up, which I also learnt a lot from my mistakes, to say the least.

I admit I did own PMs (Gold Eagles & Silver Maples) decades back and what did they do for me? Nothing much and on the whole, I was neither green nor red on it (I think slightly red after I included the transaction cost and testing procedures by the bank etc.). I sold off all my physicals since, and I never felt “lighter”.

I’ll bet you, during the next cyclical downturn, I’ll make more money from non-PMs and learn more from it, than someone still counting their dead-money in Gold coins like some miserly hermit.

Yes, PMs “preserve” wealth.
The problem is you forget that wealth is fundamentally a RELATIVE measurement.
If you “preserve” your wealth, it means it is not progressing at all, while others are gaining on you incrementally. That in turn makes you “poorer” in comparison.

Take it whichever you want. I don’t owe you anything and neither do you know e personally. So good luck with your PMs or whatever else your’re vesting in. I’m done arguing here. lol.

RagnarD

Sep 6, 2018 at 2:46 am

@Kevin
If you bought value, you can do well over the long term.

Your mistake, IMO, is believing that what worked / made money for you could / should simply be a repeatable formula adinfinitum.

Rather, than tell us ur blue print for making for making money over the next 20 years?

Should / can we do exactly as u did 20 years ago?

Or have markets / valuations changed?

People who r buying in bubble-ish markets in real estate who are also paying huge property taxes, as we enter a recession…

Maybe timing matters?
Maybe valuation matters?

My Dad bought gold @ $800 in 1980. Does that make gold a stupid investment for me in the future?

From what I read on here, some ppl would argue it does.

Crysangle

Sep 6, 2018 at 7:14 am

I don’t think it is arguing, people come from all backgrounds, live in various circumstances, and plan different trajectories. So it is more a question of comparing with each other and looking to glean knowledge and perception. Gold is a store of wealth outside of system, that is relatively reliable and can easily be used as (or is) money. If you are competing to win money, or to implement it, then just storing it is not going to seem very wise. So I can cheer your commitment to activity at the same time as appreciating those who bare the prudence of being cautious setting aside a reserve in gold. No one is going to be the judge on who is right or wrong, though all kinds of arguments can be made to support either. One thing I don’t agree with is that storing some gold makes you vulnerable to be targeted – it doesn’t if not advertised. In fact the only true defense from that is to be poor, as under whatever circumstance it is any wealth that gets stripped from people… cash, food, belongings and more. Even trusting a centralised system is no guarantee, some would say the opposite. So stories of people being robbed of gold, sure, just like all over the world countless people are being robbed in countless other ways, often grimly, for their non gold wealth.

Silly Me

Sep 5, 2018 at 4:00 am

Thank you for the article, Wolf. Here is what I have learnt, admittedly, through some conjecturing.

Lots of people seem to hoard, because they expect a collapse. While porn does have a realistic foundation, hoarding PM can work only in the long run, unless you are extremely lucky to catch the fast-moving phase of the trend at Rock bottom prices. Even at that point, the investment can be of dubious nature, because a complete collapse of the PM market can occur during episodes of societal breakdown.

A breakdown will be preceded by inflation, during which PM will prevail over cash. Yet thinking further doesn’t hurt… If a breakdown should happen, anarchy will ensure, probably for a couple of years, during which only those would accept your PM who have plenty of survival resources. Those will either disappear from the map or will be extremely risky to trade with because of their vassals who all want a piece of the pie. The rest of the populace will be forced to barter and only useful items will carry trading value. When after a period of consolidation, another neofeudal system arises from the ashes, the strong will simply rob you in exchange for”protection” from themselves.

You can run, but you cannot hide. If you really care for the future, work towards prevention and organize grassroots. Most young Americans don’t even know what grassroots are… Sadly, it’s probably late even for that. The powerful who have been plundering the Globe for the last 150 years or so, are moving their vested interests out of the country and insider trading pays better than the old-fashioned maffia-style corruption in government contracts, so even our infrastructure is collapsing. Companies care more for their stocks than for their workers and they WILL run out of workers (well, too many can’t even pass a drug test at work even today).

TWolfe

Sep 5, 2018 at 4:28 am

OK as a long-time commodities trader I’ll share some of the expensive lessons learned along way regarding Gold & Silver.

IMO I don’t recommend investing in physical Gold unless you simply want to enjoy it for it’s beautiful golden aesthetic. Silver is your best option for physical and not as an investment, but as a long-term insurance policy against severe Dollar devaluation. I would only recommend 1 oz Silver Maple Leafs because they’re %99.99 pure and include anti-counterfeiting measures (American Eagles would be my second choice). In a crisis a pure Silver government issued coin is going to be instantly recognizable by any pawn shop, dealer or individual and offer the best chance at redeeming for spot value. In an intractable crisis DO NOT assume you will have access respectable PM’s dealers, but will be forced to utilize shady pawn shops. If you show up with bars, junk Silver, or anything not instantly recognizable in a uniform coin denomination; be prepared to be low-balled by the dealer who will question it’s authenticity and tell you he can’t ‘move’ product without the appeal of a government stamped coin. In a Dollar crises I would anticipate each 1 oz coin to cover a week’s worth of groceries; so 52 Maple Leafs for a year but budget for a decade. Any fundamental currency crisis is only going to be resolved after a VERY prolonged period where the gov has tried every corrupt and confiscatory trick in the book (see Venezuela). In such an environment, Gold in any form will only paint a target on your back. Again, assume that every time you go to exchange a coin for fiat, that the person on the other side of the transaction will be untrustworthy.

Investing in Gold & Silver ETF’s stocks can be lucrative in the short-term but only if you’re shrewd enough to forgo emotions, have lots of patience, capital, and realize that shorting PMs is almost always (i.e 90% of the time) more profitable than going long. Another aspect that will factor immensely into success will be the ability to totally ignore all news (especially from alternative sites) regarding precious metals. They will bombard you 24/7 with FUD about how markets are going to crash any moment and Gold will skyrocket. Is it possible? Sure, in a remote possibility sense. But if you surround yourself with this type of bias you’ll start making very poor and costly decisions. In the end, the chart on Goldprice.org and Fed meetings should be your sole sources of truth. The chart doesn’t lie. The trend is your friend. All good things come to an end. Finally, Gold Bugs should steer clear of market investing in PM’s as they’ll naturally gravitate to long positions and act on bad advice from biased PMs dealers or easily fall prey to a ‘sky is falling’ mentality.

A wise first step is to build a large and long-term hedge to HODL in the event that markets DO enter a severe inflationary recession. This can allow you go short on a cyclical basis with the hedge there to protect in the rare event Gold does take off in a big way. I can’t think of a better long hedge than GDXJ as (since it’s rebalance a year ago) now holds a larger portion of mid-cap miners, along with efficient small cap and speculative. Your GDXJ hedge should be 3X the total $ amount you plan to go short on a cyclical basis. GDXJ anywhere below $30 is fine and is a bargain at this time. Stay away from individual stock picks as they can plummet on the slightest bit of bad news and will (permanently) become a short-seller target once any weakness is perceived. Take a look at TAHO for example. One of their mines closed thru no fault of their own and ,even after the mine reopened, short sellers continue to decimate the stock.

For your shorting vehicle, JDST is the most popular with leverage. Remember, the bull takes the stairs and the bear jumps out the window. JDST capitalizes on that Gold bear jumping out the window. While a lot of savvy day traders can play JDST and JNUG effectively on a daily basis, it takes years of practice, gobs of free time, and serious emotional discipline to pull off. Swing or cyclical trading (while not as efficient) can suffice nicely with practice and doesn’t require nearly as much time investment. Gold travels in rough quarterly to half year cycles so patience is necessary to wait out a top before entering JDST for the way down. Hubris will cost you dearly – do not try to call the top in Gold – wait for the chart to ‘show’ it to you first before diving in. And beware of false tops that seem too low or too soon compared to the last high mark in Gold. Split your cash into at least 3 equal amounts and buy each only on significantly lower price points (DO NOT buy every dip – be comfortable sitting in the red). STRIVE to hold onto only 2 of those 3 cash positions. If you end up with all 3 positions, immediately place a good-til-canceled limit sell (at break-even) on your worst one to unload ASAP, so you can recycle it into a better price IF the opportunity presents. The goal is NOT to be 100% all-in on investable cash – Only 2/3’rds invested is optimal. Become proficient and USE stop limits for overnite, stop losses during the day, and stock price alerts. As the song goes – Hang on Loosely! Always maintain a ‘Deal or No Deal’ attitude. Finally, 3X leveraged ETFs like JDST will beta decay over time so you CANNOT buy and hold them indefinitely. JDST and JNUG decay at rate of about 26% a year (or 2% month) depending on volatility.

Lastly, “Fear will prevent you from realizing a profit but greed holds the undisputed title for turning profits into losses.”

RD Blakeslee

Sep 5, 2018 at 10:39 am

“If you show up with … junk Silver, or anything not instantly recognizable in a uniform coin denomination; be prepared to be low-balled by the dealer who will question it’s authenticity and tell you he can’t ‘move’ product without the appeal of a government stamped coin.”

You’re certainly correct but, unless your pre-1965 coins are in near mint condition, that dealer is going to focus more on it’s condition (i.e resale value) over it’s Silver content or melt value. Conversely, an uncirculated Maple Leaf or Eagle has both purity in Silver content and resell-ability going for it. While I certainly wouldn’t toss out any old Silver content coins, I wouldn’t purchase any for their melt value.

Buckaroo Banzai

Sep 7, 2018 at 1:20 pm

There is no gold dealer on earth who cares about the condition of pre-1965 “junk” silver coins. To the dealer, 100% of their value is their melt value.

Savvy buyers of “junk” silver like it because there may come a future time when these coins will circulate once again, at which point their availability in small denominations combined with the “sight value” bestowed on them by their widely recognizable and hard-to-counterfeit appearance, will increase their practical value substantially.

L Lavery

Sep 5, 2018 at 10:59 am

HODL?

Wisdom Seeker

Sep 5, 2018 at 2:29 pm

HODL = “Hold On for Dear Life” in this context.

L Lavery

Sep 6, 2018 at 2:47 am

I don’t think so. It originated on reddit’s bitcoin thread[1]. That’s why I’m questioning its use (or misuse?) by a trader.

I used HODL in reference to GDXJ because it can be very tempting and foolhardy for new investors to sell their hedge when they see a large gain on it, while also playing the short side with leverage. In this case GDXJ isn’t for short-term profit but as an insurance policy to be held while playing JDST.

FYI, did you know that if you held equal amounts of JDST and JNUG at the beginning of the January 2016 correction (with Gold at $1055/oz), JNUG appreciated by 1500% while JDST depreciated by the same amount. But leverage is cumulative on a daily basis so that $10K on JNUG would have be worth $150K at the top, while the $10K on JDST would only be worth $667. So, combined that $20K total would be worth over $140K. Only during a BIG sustained move can these two ETNs can act as a long-term ‘options-like’ straddle though. And because of bull vs bear sentiment, JDST appreciated faster as Gold fell back to $1122/oz. Everyone who had held onto their JDST got their $10K back; even though Gold didn’t return back to $1055/oz. Those that held onto JNUG were decimated as it initially started at $20 share (going to $300) but ended back up at the equivalent of $5.50 share after reverse split.

Gershon

Sep 5, 2018 at 7:00 am

Physical gold and silver are the best protection against the Keynesian fraudsters at the central banks and their deranged money printing. When people lose faith in green FedBux backed by nothing, they are going to want a store of tangible wealth that does not represent someone else’s debt or liability.

BlueinTX

Sep 5, 2018 at 11:06 pm

“Keynesian Fraudsters”
What are you on about? You do know what Maynard Keynes actually promulgated and taught, right?
If you did, than you would know that he was very much pro free enterprise, and believed that government should only interfere in the economy if it “stalled”, and private entities were unable/willing to jumpstart it.
Now Keynes did also believe that government had a duty to provide public goods, for example land for railroads, canals etc.; but that was common wisdom long before his time, look also at US bankruptcy laws to make easier to declare and get out of bankruptcy e.g. Railroads!
A lot of the New Deal/Great Society ideology was also based on the research of Galbraith Sr., this ideology brought us unprecedented growth and prosperity from the 1940s to the early 1970s!
Most of our economic and social ills come from that charlatan Milton Friedman (who had lied under oath to Congress in the early 1950s) and his supply side nonsense- that is Reagonomics!
Let me guess-you are one of the guys who fell for Glenn Beck’s Goldline scam, didn’t you?https://abcnews.go.com/Blotter/goldline-execs-charged-fraud/story?id=14857253
I know of a lot of family/friends/colleagues that fell for that swindle and the tales he spun.
By the by, the US government never confiscated Americans gold, what happened is that in 1934 all circulating gold coinage were bought back at $21 to the ounce, when gold was still officially at $20/oz., but yes the sales were mandatory and made a profit for the sellers!
Also, old gold coins and collectors items were never “confiscated”.
But than again it does sound better-as Glenn Beck said-that the “gummint”only paid $8/oz or whatever!
Fake rage always gets to me, sorry.

MooMoo7665

Sep 6, 2018 at 5:08 am

…except gold was $35 per/oz in the market before FDR did the reset.

BlueinTX

Sep 6, 2018 at 8:48 am

Partially correct!
The gold price was raised in 1934 to $35/Oz by the Gold Reserve Act !
Please also remember that the gold content of a 1oz double eagle was less than 1oz, that’s called seignorage!
For example, the Gold Standard Act of 1900 set the value of pure Gold at $20.67. In 1834 it was $20.69. While in 1791 it was $19.49!
Also before this reset, speculators already turned in their gold coin to the treasury for profit in 1931-1932.
One correction on my part, FDR authorized the mandatory repurchase of all monetary gold in 1933 before the Gold Reserve Act! So, everything in regard to prices that I wrote is correct, however I put in the wrong year though. Still not bad for writing originally from memory only.
Here is a link to the price of gold throughout history, enjoy!https://www.thebalance.com/gold-price-history-3305646

Wisdom Seeker

Sep 6, 2018 at 2:45 pm

Re: [“Keynesian Fraudsters”
What are you on about? You do know what Maynard Keynes actually promulgated and taught, right?]

Today’s so-called Keynesians are to Keynes what many of today’s Christians are to Jesus. The modern label doesn’t match the historical reality, but that doesn’t make the modern label invalid.

But I agree today’s policymakers could benefit a lot from a fresh look at Galbraith Sr.’s wisdom.

BlueinTX

Sep 6, 2018 at 4:50 pm

Thank you for your comment.
We could as a nation and as individuals relearn a lot from the past.
I was fortunate to have been born in the mid 50s and in the 60s and was able to benefit from the greatness of the New Deal, the Public Works and Parks in Albany, St Louis and Dallas were a marvel to behold and part of my fondest memories.
As far as the modern label for Keynes- we really need to make sure we are comparing apples with apples not oranges. Mislabeling Keynes is not helping the debate-which we should have. I am certain commenter Gershon doesn’t know the difference between the real Keynes and what is being “taught” as being Keynes.
Faux-Keynesians should be called out for what they are-fraudsters!

govinda

Sep 7, 2018 at 7:57 pm

Keynes was a utopian. In a utopia his theories worked beautifully. In reality, human nature is driven by greed among other things and as such his theories cannot be adhered to and consequently are worthless.

I’ve been studying and investing in gold at times for almost 20 years and the arguments on this thread are the same ones I read when I started. Invest a little in physical, a bit in paper derivatives when it seems favorable, have skills and ammo – its all an insurance policy.

Nicko2

Sep 5, 2018 at 8:34 am

Gold is stupid and produces negative returns. Buy income producing properties…..indeed, most true wealth is generated through ownership of LAND and property…the only thing they aren’t making more of. As always, be globally diversified, buy low, sell high. You can’t lose.

Jon

Sep 5, 2018 at 9:02 am

I bought 2 properties in 2005 and keeping all the upkeep , I am still down in San Diego although nominally the prices have reached/surpassed their previous peak but keeping a property is a lot of money and work.

In essence, It’s all about timing. The properties I bought in 2011 is doing good for me

Saltcreep

Sep 7, 2018 at 7:36 am

“Buy low, sell high”

Cracking bit of investment advice there, Nicko.

Anthony

Sep 5, 2018 at 9:25 am

I’ve bought some gold and a little silver but not really as an investment. I bought the small amount I have as a security blanket, just in case…… lol

raxadian

Sep 5, 2018 at 10:20 am

Gold is used on cellphones but nowadays companies are cutting the use of rare metwls and gold on cellphones. They want cellphones to be disposable and hold by glue after all.

wendy

Sep 5, 2018 at 11:19 am

In looking at the absolute peaks in the silver price from Wolf’s graph, in 1980 and then again in 2011, I cannot help but think that each “mania” in price is perfectly timed so that there is one of these events in each investors “investing” lifetime. This is similar to wars happening every 30 years, so that each new generation–that has not learned from the previous generation–gets to participate in repeating history, and getting a costly education.

If this is true, we an expect another exponential peak in PM’s around 2040. I watched my father participate (and lose money) in the first peak in 1980, and I did a similar stupid move in 2011, and I expect that my “old fogey” cautions will fall on deaf ears as my younger colleagues “discover” gold investing, and learn its lesson, around 2040. For each person that makes money in gold, there seem to be hundreds that are being taught an expensive lesson. I still keep a bag of junk silver coins that my father bought back in 1980 at $30/oz. as a reminder to diversify, and not follow the crowd.

I own GDX, but something tells me that if I had to put 100 shares of GDX in a box along with an equivalent dollar amount of VTI (stocks) or VNQ (real estate), and open the box 30 years later, I would not be blown away by the appreciation of GDX, however, in the short term, when rebalancing a portfolio of non-correlated assets, GDX makes sense as a component of a well balanced portfolio.

TWolfe

Sep 7, 2018 at 4:21 am

I used to own GDX but have since sold and bought GDXJ as I feel it now more effectively tracks miners since it’s rebalance into mid-cap stocks. If I were aiming for a hedged/passive portfolio I’d p/u the following 3 ETF’s.

DIA or SPY – Either is going to benefit from central bank money printing and general long-term stock market appreciation. SPY is the more stable option (having exposure to 500 equities vs 30) while DIA offers a slightly better dividend and tends to go up (or down) more compared to the S&P. I’d wait for at least the next market correction before entering though.

MLPA – Made up of several high dividend pipeline companies that fulfill a large portion of American & Canadian natural gas and oil needs. Unlike precious metals, oil & natural gas is the world’s largest consumed commodities. Although geopolitical, oil does a pretty good job of tracking inflation over the long run. And while oil ‘producers’ may come & go, those who transport it usually have a more stable source of income. This component of a portfolio essentially provides dividend income even when markets are going nowhere. That said, oil & especially pipeline companies usually sell-off adversely on market corrections & crashes, so are best picked up during a market correction.

GDXJ – While this one offers non-decaying leverage to gold & silver prices, it’s likely to be the worst performer of the lot, but has a track record of acting as a hedge. During the January 2016 correction the S&P fell 18% while GDXJ went up 300% and during the Financial Crisis it went up over 700%. So in effect a hedge like this is like a spare tire – it doesn’t do much most of the time but comes in real handy when things break down.

Beyond that, any good strategy includes some occasional rebalancing so a good rule of thumb is if any one ETF doubles in price, it’s a good idea to sell a third of it and split the proceeds to buy more shares of the other two holdings.

TWolfe

Sep 7, 2018 at 4:34 am

Side-note regarding GDX vs GDXJ. Both track miners but GDXJ tends to rise & fall faster than GDX. If your in the red on GDX and feel that gold has bottomed out, then exchanging GDX for GDXJ could provide a tax credit on the loss while potentially seeing the proceeds appreciate faster on the way up.

bungee

Sep 5, 2018 at 11:31 am

These comments are reaching the “guano crazy” level only a conversation about gold can take it. I’ve had the “beam removed from my eye” on this topic so allow me to “remove the mote” in yours (a Biblical reference). If the SHTF and things get as black as some are imagining then displaying wealth will be dangerous. But notice that on the one hand (Kevin, I’m looking at you) gold is worthless in such a situation, and on the other hand people are trying to kill you for it. Which is it? something with no value or something worth fighting over?
Also note that stockpiling weapons and food and creating a bunker is as mentally twisted as hoarding gold. why have food? why have dollars? they’ll only kill you for them!!! This is all fantasy.
There is no reason for gold in your worldview.
TWolfe (above) is just flipping paper that has no connection to the metal in a market that serves no purpose to manufacturers, producers or “consumers”. Paper that is sold as a hedge against paper but useful only to make a buck shorting it. Pure risk.
Kevin says it’s good in a narrow set of circumstances but that those same circumstances make gold worthless.
And Nicko2 is saying buy land all over the world. It’s that easy!
In your worldviews anytime we come across a chunk of gold we should sell it immediately before it costs us more time and money and warps our minds into Gollum. We should never save our wealth but instead give it to Charles Schwabb and simply buy low and sell high. piece of cake. Dump it in the 401k and bing! like a microwave oven your retirement will be ready in a jiffy!
Sorry, but most people are savers by nature. Not investors. This is why gold exists. Investments carry risk by definition. I have investments and work hard to ensure the success of my efforts. But when I am successful and have a little extra left over, where to put it? Turn around and give it to some poor starving Wall St. kids? Heck no. I put it into gold where it can sit and not cause me any problems. Many, many people do the same. The paper investing being discussed will disappear as it is the one with no point to it’s existence. physical gold aint goin nowhere.

MooMoo7665

Sep 6, 2018 at 5:14 am

‘physical gold aint goin nowhere’

…sure hasn’t in the past 7 years.

A Citizen

Sep 5, 2018 at 12:25 pm

It’s just another asset class. If there’s a trade in the paper market, trade it. If there’s a trade in the physical market, trade it. As soon as you start using it as a philosophical platform you’re done.

Carnack says: Straddle NUGT MAR2019 CALLS @ 12. PUTS @ 11.

If you’re biased long, buy more calls. If you’re biased short, buy more puts. Use the other side of the trade to cover the risk of your momentary insanity to your principal.

Now, go play some golf.

MooMoo7665

Sep 6, 2018 at 12:46 pm

…and time value premium would have crucified you over the past 6 years.

I don’t think tracing gold history back to the 1980’s gives a complete cycle.
Gold did very well through the Great Depression up through to the inflationary 70’s.
1980 thru 2000 was an amazing bull market in both stocks and bonds, which often move opposite gold.

My narrative is still that the current gold run in 2000 started with the rise of the big gold-buying EMs – India and China. The top happened as investor gold demand plummeted as it shifted into a fractional reserve ‘paper gold’ system requiring a lot less physical gold backing. This will probably continue, as most investors are happy to resolve their beta in dollars anyway. However, I can see more demand for gold coming strong when the Fed reduces course, the dollar weakens, and EM currencies rise again. Until the Fed turns though, you’re catching a falling knife. Gold moves slowly – it won’t spike after the fed turns, but it will turn back to a strengthening cycle perhaps a few months to a year after that point.

Ambrose Bierce

Sep 5, 2018 at 12:36 pm

The manifesto for gold is A) When the price hits bottom there will be none to buy. As fiat currency globally collapses the CBs will print more and buy gold, while simultaneously driving down the price in the futures market. The investment world is over leveraged and gold counts as leverage. So gold comes down as part of the deleveraging B) A bull market in gold will begin, (supplies limited) consumer driven, because the poor love gold most of all, and there will be a lot more of them. The miners will benefit, and it will be a long pull higher. C) The psychology of gold has always been disparaged by the various religions, as false idols, but in other religions gold is a symbol of spiritual perfection. D) Bitcoin/Blockchain is electronic barter. This supercedes money, as a transaction only digital currency, money is always somewhere. Gold offers a stable place to park money you are not otherwise using.

RagnarD

Sep 5, 2018 at 9:23 pm

Transaction only digital currency?
I assume you mean the value of bitcoin is simply in doing transactions, that it doesn’t/it is not a store of value.

that’s how I see it.

gold is a store of value.

bitcoin is simply currency for transactions, not a store of value. because u should /
Could buy/ sell it the instant before you wish to transact on the Internet. But for all other moments, your money should be in gold.

jpb

Sep 5, 2018 at 4:55 pm

I first bought gold in 1975 for, if I recall right, $134 per ounce. I still have those gold eagles. I bought heavily in the late nineties and again in 2006. The main reason to own gold is it has no counter party risk. Central banks buy gold for this reason. I just sold a 1999 gold maple leaf for four times its purchase price, for some pocket money. I don’t think the S&P has done as well in nineteen years.

Some commentators note gold is not useful during an anarchic event. I agree…gold lies very still until order is reestablished, then one retrieves the reserve, hidden, silent asset and sells for the new currency to buy producing assets from those forced to sell at the lows.

Gold is savings, not investment. I own shares of quality companies, real estate, and cash; all of which carry counter party, government, and price risk. The gold coins will remain, even if the system collapses, as all systems and empires eventually collapse. Who do you think owns the thousands of tons of hoarded gold? People who know or study the history of monetary systems and empires.

IMO–gold is cheap as all other assets are priced high due to the extremely low interest rates. Some say gold is leveraged, well it is leveraged because gold paper is leverage. Unencumbered physical gold is not leveraged, hence it has the potential to be leveraged in the future. Physical gold is a vehicle for safely transferring wealth through time and space!

RagnarD

Sep 5, 2018 at 9:14 pm

What’s the difference between savings and investment?

What I mean is, at any given point in time you’re looking to place your money most wisely. If you think stocks real estate bonds are overvalued and you think gold is undervalued is that an investment or is that savings?

Mind you, I don’t really care which it is, but I read countless ppl getting their panties in a bunch over this pointless conundrum.

Wake up people.

Gold when up 30%/month in the 1970s.
And it went from ~$250 to $1900 from 2000 to 2011, outpacing stocks.

Investment or savings?
Who cares.
Rather:
buy low, sell high

Btw, I love to Peoples justification for the valuation of bitcoin by relating it to gold. But wait! gold Has not gone anywhere for years, but bitcoins going through the roof., and bitcoin has a ton of shortcomings. Yeah gold has some too, but it’s GOLD. The standard. And it’s not gone anywhere in price for years. Take note.

bungee

Sep 5, 2018 at 9:54 pm

investing is what a person does when they need to MAKE money.
saving is what a person does when they have TOO MUCH money.
saving is what rich people do.
the question is do you think investing in a paper product and following graphs and price fluctuations will be the equivalent of owning physical gold? Do you think “investor demand” will surge on fears of dollar weakness and then you will “sell high” when it goes into bubble territory, never having actually touched the metal? if so, you believe that ultimately, lack of supply will force the price of gold paper up. But there are no meaningful metrics as already explained. This market is bogus in connection to physical gold. if a discrepancy emerges between physical and paper, where paper is trading at a discount to physical, the natural arbitrage will be to sell physical and buy paper. But physical is rising because of a lack of confidence in paper! NO ONE is going to sell physical gold for paper in that scenario. In fact, people who owned paper gold as “insurance” are going to be dumping it for physical making the gap that much bigger!
So yes there is a potential for a YUGE move up in gold. but that is not the only or even primary reason for buying it. and people who are buying for that reason alone dont get it and will sell at the worst time.
last point: the above isn’t true for commodities and their futures. their paper markets function properly and play a role on the underlying materials. it is a problem unique to gold and so any conversation about gold as “investment” or as savings or as “commodity” MUST differentiate between paper and physical. You can shake oil and vinegar together, but after a while they will seperate.

RagnarD

Sep 6, 2018 at 2:23 am

@Bungee
One of my fave investment philosophies is to invest like you’re really wealthy and don’t need the money.

Why?

Not because one would the choose savings over investment, but because one could then choose value over momentum.

IMO value is relatively easy to determine. But determing when the price is going to start to move for or against you is much harder to predict.

jpb

Sep 5, 2018 at 10:34 pm

After thinking about your question for a few minutes I agree with you, differentiating savings and investment is meaningless. The ounces of gold have gone nowhere for decades; required no management or maintenance…..still, silent, and patient. It is a wealth reserve. It is not a promise to pay. It has no counter party risk. Get you some!

bungee

Sep 7, 2018 at 12:51 am

jpb,
you say it’s meaningless but you’re speaking as a true saver.
An investor or a trader needs to make money and has time constraints. Such people will be much more likely to invest in paper gold rather than go to the trouble and expense of buying physical bullion. Why? because they need to be able to sell when the spot price goes up and it’s just a click of the mouse instead of some weird guy at a coin store inspecting a bunch of metal pieces. no investor is going to talk like you, “gone nowhere for decades” and be even remotely happy about it.
what if someone said that the words investing and gambling were the same? that there is no difference?
“I’m gonna go down to the casino and invest in some roulette”
my point ultimately is NOT about semantics. it’s about physical vs. paper and people who are unclear on the meanings of words can cause all sorts of problems like – saving is investing and investing is gambling, so…… gambling is saving? We might actually be there at this point :/

L Lavery

Sep 6, 2018 at 1:00 am

BTFD.

MooMoo7665

Sep 6, 2018 at 5:17 am

Gold is an insurance policy… against a monetary/social event. (argentina/turkey).

It needs to be sized as an insurance policy… around the 3-4% of portfolio

Karl

Sep 5, 2018 at 5:04 pm

Bug out bag to where? Forget hoarding metals, a marketable skill will serve you better.

Laughing Eagle

Sep 5, 2018 at 5:21 pm

The comments about past history of 20 and 30 years all changed in 2008. This is a new era. The past 20-30 years has nothing to do with the next 30 years. With all the currency and debt created since 2008 gold will be the true investment along with land. It is the Wall Street boys who have to trash gold or otherwise Wall Street paper is worthless.
The silver market is too small and too volatile and 60% depends on industrial demand.
The financial world changed in 2008. Central banks created trillions in fiat since 2008 to prevent deflation. Their biggest fear is deflation and that is why they create more currency and lower interest rates.

RagnarD

Sep 5, 2018 at 8:59 pm

I find it odd that ppl here (and elsewhere) Seem to feel the need to preface their purchase of gold with “not as an investment”. It’s As if they’re trying to avoid looking so foolish as to expect gold to go up in value. Just seems Very contrarian indicator to me.
Along with “only at 5- 10% of my portfolio” So wise!!! So judicious!!

Start at a different point in time 1970 1980 1990 2000 2010? What would the judicious, rear view looking, fearful of being mocked, internet poster proudly profess to be holding?

And how wrong would he have been?

A Citizen

Sep 6, 2018 at 7:24 am

“Just seems Very contrarian indicator to me.”

Bingo.

cd

Sep 6, 2018 at 12:33 am

Actually commercials are net long in gold and silver, first time ever for silver and shorts are at record highs…..

an epic short squeeze might be in store…..but gold and silver are just part of your investment holdings…

MooMoo7665

Sep 6, 2018 at 5:19 am

US Dollar is so strong it could kill a giant.

Hard to see how gold rises in that environment.

Also, there is a brick wall at about $1370… until you get a solid monthly close above that… fuggedaboutit

P Seibold

Sep 6, 2018 at 9:07 am

You hoard gold & silver to pay off people to help save your life, to trade for food& to escape a country. I have friends who were able to escape Vietnam on a rowboat with gold coins . Nazi Getmany. History repeats itself.

Buckaroo Banzai

Sep 6, 2018 at 10:56 am

Wolf, you might want to look more closely at the silver market. It is quite distinct from the gold market.

For example, the amount of readily-accessible above-ground silver is minuscule compared to gold. Silver was globally demonetized in the 1870s, with the notable exception of China, which continued to use it as a monetary metal well into the 20th century. The demonetization created a gigantic hoard of above-ground silver that took literally over a century to work down. Silver was finally completely dishoarded in the early part of the twenty-first century when the US Federal government’s silver hoard was worked down to almost nothing–a hoard that totaled something like five billion ounces at its peak. JPM allegedly has a silver hoard totaling 850 million ounces, this is now the largest known concentration in existence. But nobody else today seems to have even a tiny fraction of this amount above ground. Check the numbers for yourself, you will be shocked at how little silver is available above ground. Note also that many large industrial users now contract directly with silver miners to secure their supply. Furthermore, note that silver recycling is no longer a meaningful contributor to supply, and hasn’t been since digital photography completely eliminated silver-based photography. Industrial use of silver is now largely in electronic components, and the problem there is, it is used in tiny amounts in millions of devices, making it uneconomical to recycle at these prices. The price of silver will have to reach into the hundreds before it becomes economical to recycle again.

Bottom line is, the fundamentals of the silver market have been changing dramatically over the last twenty years, and the price has lagged these changes very badly. IMO we are overdue for another big “catch-up” price event that could propel the price into the $1XX range.

RagnarD

Sep 6, 2018 at 12:33 pm

Long term Gold / Silver ration chart…
Assuming one targets gold at $5,000/oz and silver reverting to 40:1 ratio from current 80:1, that would put sliver at $125, on the low end, IMO.

“For example, the amount of readily-accessible above-ground silver is minuscule compared to gold.”

I would have to respectfully disagree with this statement. I was witness to the peak and crash of silver around 1980. When silver was going up exponentially, there were full page advertisements in the newspapers (now I am really dating myself) for coin dealers buying PM’s. I remember visiting said coin store, and was amazed as to how long the line was–literally around the block. People had coins (junk and numismatic), bars, Franklin Mint, watches, wire, jewelry, and silver tea sets and place settings. Some showed up with beautiful uncirculated coins, others had silver tea sets in pillowcases ( I can only imagine where these came from). All the stuff that was not numismatic grade coins were thrown on an industrial scale, and a “cash price” was offered to the seller, which to my amazement worked out to be about 50-60% of the spot price. Numismatic, and proof coins were being bought for about spot price. I remember thinking these sellers must be nuts, or the stuff had to be stolen. This went on for months, full page ads, lines out the door, Brinks trucks delivering cash, and hauling away PM’s, until the party ended as the price of silver cratered courtesy of the Hunt Brothers. My father actually stood in line outside, looked for any interesting items for sale, and offered to pay 10% more that what the dealer would pay, knowing he would be able to still get a bargain. He did this for days until somebody in line told the employees that there was a guy in line willing to pay more, and they banned him.

Anyway, what I am trying to say is that there is a huge hidden reserve of silver supply that will magically materialize if the price of silver today suddenly goes up to $30-40 per ounce. If they have to steal grandma’s silver tea set, and grandpa’s silver coins, they will do it. I will be unloading my modest silver stash, and will not look back, since as Wolf has pointed out, there are infrequent peaks in the value, and I am not going to be so foolish to think the price will go to the sky, or stay at a permanently high plateau, or the stuff will become the only currency in a post-apocalyptic world. I certainly do not want to hold on to this stuff for another 20 years, but I may have to. I once met a guy that had over $1M face value junk silver dollars and quarters. He had been collecting all his life, and said he could kick himself for not selling when silver spiked around 2012. At age 70, he is itching to unload if silver suddenly goes up. So here is a guy with over 700,000 ounces of silver, and if the price is right, it will become readily accessible on the open market. I remember asking him why he had so much, and he told me it was the only asset he trusted besides real estate. He did admit that his “investment” would only make money if silver got to $30. For every guy like him, there are innumerable others just waiting to cash out–whether they make a profit, or not.

As someone once said, “the cure for high prices, is…..high prices”, meaning if PM’s peak suddenly, there will be so much coming out of the woodwork, that eventually the price will come back to earth.

So, I would contend that there is a huge “shadow supply” of silver that will be dumped on the market if the conditions are right. I just hope I live long enough to see the next manic peak, and am not senile enough to realize that this is my opportunity of a lifetime.

Buckaroo Banzai

Sep 6, 2018 at 10:35 pm

Don’t confuse huge, government-controlled or bank-controlled hoards with, say, hundreds of thousands of individual small holdings. The US government had the last big hoard, and it’s all gone. IMO that had a lot to do with the 2011 silver price spike.

Also, how many people hold silver today, compared to 1980? Back in 1980, silver was only 16 years removed from being in everybody’s pockets, the common man understood silver’s value, and most people had a stash of old silver coins in the attic or basement. Now, nobody knows anything about silver. Few people alive who are under 45 years old have experienced finding a silver coin in their change, that was a relatively common experience well into the 1970s.

Do your own research, don’t take my word for it. Compare the known above-ground silver stocks in 1980 with today. The amount has dropped dramatically– silver that once resided in vaults and cupboards has, over the last fifteen years, been consumed in electronics and is now taking up space in landfills.

Mikey Mike

Sep 6, 2018 at 12:21 pm

PermaBears missed the main point of this excellent article. Trade it or stash it away and forget about it for years or even decades – whether or not you believe doomsday is soon upon us lol.

stackerDoug

Sep 7, 2018 at 12:06 am

I can’t believe I read this whole thread. Especially all of Kevin’s comments and obnoxious lol ing. Thank you Bungee for bringing me back to reality. PM’s are true money. Precious for their unique elemental properties, and respective rarities. Gold isn’t going anywhere because it will not tarnish or oxidize and is impervious to acidic environments. Silver is the most electrically and thermally conductive metal. I am sure that I will not find any of either naturally occurring on any of my or surrounding real estate.
Wendy- I wish I was the man that owns a million dollar face value. Do you realize how big his vault would have to be? For him to clear a profit, silver has to hit $30? So he spent 10’s of millions on junk silver and now he regrets it? I’m sorry about the senility, but it sounds like pure fiction. I hope we both live long enough.
History repeats itself- but not always. I try not to speculate. I try to save, protect, and invest to thrive but most importantly survive. I sleep well knowing I have some stacks of “real” money assets in my safe right next to the rifled steel tubes and the other true PM’s-Lead and brass.
Hope for the best, prepare for the worst.

Wendy

Sep 7, 2018 at 4:44 am

I agree with you. Having some silver, and other PMs is ok, perhaps with some rifled barrels and lead, as part of a diversified “portfolio”. I think where some people go off track is when they think one asset, such as silver, will only go up in price, and if they make a huge bet on it, they will be set forever. The old guy, with the ton of silver, to make money, has to consider inflation. Silver that he bought for $10/oz in the 1970’s would have to sell for God knows what today to keep up with his commercial real estate investments, and the silver produces no dividends such as rental income. In addition, how does he sell it? Even refiners would probably pay him less than spot, just for the hassle of dealing with such a large quantity. Can he legally melt this stuff? I don’t know.

I do remember hearing a talk from Kyle Bass, the investor, on YouTube saying that the price of nickel, in a US nickel, at one point exceeded the face value of the coin. He was talking about purchasing millions of them to melt, which seemed like a reasonable idea, but somewhere I thought there was a law against this.

stackerDoug

Sep 7, 2018 at 7:50 am

There probably is a law against melting it, and many other things that make absolutely no sense. I would also say that in a case of hyper inflation that ignoring of laws is the first step in the destruction of a “civilized” society. I own 90% U.S., 80% canadian, 72% mexican, as well as 100% from all three. I figure if I have to run North or South, I should be covered. Chances are I will stay right here in a defensive position. I try very hard not to be one of those people that has more money than sense. Although I might be viewed as a failure to some, I feel right with myself and to me that is what matters. It would be hard for me to feel good about being a “landlord” robbing from the poor renters just to feed myself and tax money to the rich. I feel fine about working hard and holding wealth in a form of stored energy that requires no maintenance or tax burden. The true potential value of our metals in medical and energy technologies will hopefully some day soon be realized. It used to be if you could build a fence around it and protect it, you own it. Now it seems, if you can’t hold it in your hand, you don’t. I read that if I put my “digital” money in a bank, they own it. I only keep enough there to function. I see tangible physical money as the only logical option, even copper or zinc pennies seem more real to me than the funny looking monopoly money printed now. Markets swing up and down. The metals don’t change, the currencies do, worldwide. I am happy not to be in Venezuela or Turkey. Diversification, of course is key to survival, so I also hold some paper which only holds value if we believe. Laws only hold value if they are justified and enabled to be enforced.
In the case of old money vs. new, I vote old.

Brian M

Sep 7, 2018 at 5:03 pm

I think there are two key aspects that make this time different:

1) The vastly outpaced money printing, not just from our FED – $0.8T in 2008 to $4.5T in 2013, and the rest of the world economies with presses in over-drive, which has been echoed by fractional lending and derivative bets in exponential fashion.

2) Don’t measure your PMs in dollar terms as that is a floating measuring stick. You must measure your assets in quantities of assets. ie. number head of cattle, acres of land, ounces gold/silver. This is the paradigm shift back to the way it was before the $ world reserve currency took over.

They can’t put the genie back in the bottle. The liquidity will vanish as debts cannot be repaid while currencies disintegrate. Liquidity = readily accessible real value = PM assets. PMs fluctuate in purchasing power (not same as fluctuating in dollars) based on availability of capital. When folks are tight-fisted / scared / risk averse, they command more purchasing value, until fists relax and folks are happy to exchange for promises to pay when they feel confident promisor’s ability to pay.

When the paper goes up in smoke, there will be real assets that are left, and their purchasing power will be as powerful as they are rare. They are rare now, but unwanted. Soon they will be wanted when promises no longer are trusted.

Brian M

Sep 7, 2018 at 5:14 pm

20 year bear market sounds dreary and foreboding. Take the dollar measuring stick out of the equation:

look at this chart with inflation adjusted block check and log scale unchecked. So even during the 20 year “bear market” PMs retained their purchasing power even though their nominal $ price was uninspiring.

Price is what you pay, value is what you get.

The cure for low prices is… low prices

Even though we’ve come of a recent peak in 2011, we are close to the rising base support line on the inflation adjusted chart which would indicate silver is an undervalued “buy low” point, and that is after the most profligate global-wide decade of money printing the world has ever seen, but it’s not over yet. Interest Rate rises will be halting NLT December and QE4 is on the heels of that…

There is no turning back.

1) If you are in dollars,
2) you are in debt,
3) or owed debt.

If 3) do you believe you will be paid? if so, in what? dollars? That’s debt your back to 2) or 3)

Rinse and repeat.

When will you be paid in real money? Never till you exit the game and cash-in. Don’t cash out. Turn your cash in and Gold/Silver out.

Big Bee

Sep 7, 2018 at 8:06 pm

Gold and silver are (1)) For folks like the Peanuts kid that needed the security blanket (2) Something for people to bet on and possibly make some money on, (3) Something to do for all of the people involved in the mining, manufacture, distribution, sales, etc
If you think gold and silver will allow you to survive in chaotic times, it would be more helpful if you asked Jeff Bezos if you could have a hit off his bong “to make you feel better”……..

Brian M

Sep 10, 2018 at 2:50 pm

Your opinion is devoid of any remnant of an argument. As a result, you have added no value. Pure unpersuasive blather. Congratulations, very snide, and very pointless! Does Bee stand for Beetcoin? If you think, it might allow you to survive. Try it.

ML

Sep 8, 2018 at 1:10 am

Investment is about becoming better off than you are now.

Success is a challenge. An ongoing hurdle is Inflation. So too is the cost of ownership (buying and selling) also the loss of notiinal interest on the equity whether or not the investment medium pays dividends either randomly (as with stocks and shares) or a fixed income (as with gilts and bonds) or a legally-binding contractual obligation as with property investment. There is also the issue of tax on gain. Regardless of personal allowances, reliefs and exemptions, taxation should be allowed for. The difference between a);doubling your money after allowing for inflation, costs, loss of interest and tax and b) doubling not allowing for all those factors is kidding yourself.

One reason to buy when the total costs of the investment is low is to offset / counteract the true costs of ownership. Another is to experience the emotional feeling of having done well by getting in before the price rises.

I advise on commercial property invesment. Ime, investors generally in their assessment of having done well tend to ignore the real cost. Many years ago, I circulated to my clients and contacts spreadsheet computations on a typical commercial property. When compiling the figures, I had in mind a particular client’ portfolio comprising 30 properties then independently valued at GBP £15 million.

On my calculations, most of the properties had not performed as investments in the true sense. I asked recipients of the computations to test my methodology on their own portfolios. Without exception, recipients were horrified to realise that their investments were underperforming.

Since then the particular client’s portfolio has been overhauled and is currently valued (independently) at GBP 30 million. I very much doubt however that the capital growth would have been as good if my test were applied now.

In my opinion, cash including cash-equivalent is king. Anything else is an alternative investment which in being illiquid not only intrinsically costs more but also carries more risk.

Michael

Sep 8, 2018 at 2:55 pm

I don’t know silver very well but gold indeed takes long. Don’t forget the miners who also have to provide the maximum quantity possible and therefore lower the price.

Speculation is about buying cheaper and not selling expensive.

The most underrated advantage of precious metals is that you can trade them in every B2B market. Indeed an interesting option in countries where B2B and B2C markets are distinct.

PMs are not dependent on the interpretation of savings (think of EUrope) to somehow represent the result of ‘successful’ investment activity.

This view is only valid under the assumption of real growth in the area of consumption (good – even a tool provided by a classical line is provided in the shape of consumption) and the ‘worker’ damned to manage preferences in the company in self-employee like business instead of taking action closer to the product. The U.S. employee is more self-employed form our perspective here. I’d still think that the U.S. economy is a industrialized market economy, while EUrope is pretty more semi-industrialized still. In Germany you didn’t see the effect because the manual (closer to the product) were valued especially low.

Until 2k real growth was perceived or observed.

The transition form semi-industrial to industrialized market economy requires every employee to loose his or her savings as a result of having to reside in B2C relation (employment first).

Lines providing consumption lock in covering demands into B2B market once the finally collapse into common (unemployment is the micro-collapse of the same kind).

In the 80s too many lines were simply transformed into such lines. I’m not sure if there will be many more to finally collapse at once. Which could definitely force replacing the existing lines and the workers income (manual activities) start to rise in B2C since this portion of the economy turns into B2B (U.S. like). Such transitions were always going on, but we moved from single line collapses, to branches and in 2008 …

From the U.S. perspective globalization hurts your industries from that perspective.

Anyway, anything that is not a saving should be preferred and bought at a low price. Speculation matter today.